This bill would license and permit check cashers to become lenders outside of New York’s traditional and regulated banking system, and without ensuring the safety and soundness of those loans.
Empire Justice Center strongly opposes A.9634A/S.6985A. Originally drafted to allow check cashers to make loans generally, the bill has been amended to limit lending to small business and commercial loans. The amendment came presumably in response to opposition raised regarding check cashers making personal loans without the same level of protections that exist when traditional financial institutions lend money, as well as the fear regarding the check cashing industry’s persistent attempts over the last decade to bring payday lending to New York State. New York’s small businesses, however, are also individual consumers doing their best to run a business and need the same level of protections from unregulated and potentially predatory lending practices.
Check cashers have no experience as lenders and exist separate and apart from New York’s highly regulated and structured banking system. By allowing an unprecedented and unwarranted expansion of check cashers’ authority, the bill could pave the way for the high-cost, predatory loans that New York has long successfully fought to keep out of our state.
Furthermore, the bill would give the check cashing industry an unfair advantage over banks, credit unions and Community Development Financial Institutions (CDFI’s). The liquid asset requirement set forth for check cashers in law, and unchanged in this bill even though their powers would increase significantly, remains $10,000 which is far less than what is required of banks. It is also not clear whether check cashers would be subjected to the same heightened level of federal and/or state regulation and examination that exists for traditional institutions.
Even more importantly, banks, credit unions, and CDFI’s current provide safe, sound and fair loans to small businesses. The Community Loan Fund of the Capital Region (CLFCR), for example, has been in existence for thirty-one years, serving eleven counties and has a long history, solid experience and an excellent track record of providing responsible small business and commercial loans. CLFCR has loaned almost $5 million to small businesses over the years with an average loan size amount of $22,530 in 2015. The typical interest rate on these loans is 8.00%. Not-for-profit in nature, the CLFCR would not be on a level playing field with a for-profit check cashing industry and could very well be overrun by an industry in the game to make money rather than to provide low-cost responsible products. That would not be good for the community banks, credit unions and CDFI’s of our state, and certainly would not be good for the small businesses that are so vital to the New York’s economy.
The State Legislature should not reclassify check cashers as “financial services providers” that can make loans. Legislators need only look back to the recent financial meltdown to understand the devastating consequences that unrestricted lending can have on our communities. If we have learned anything from the financial meltdown, it is that lenders must be required to engage in sound underwriting and that effective regulation and enforcement are crucial. Making loans is a serious and complicated function. Sound underwriting calls for careful evaluation of the borrowers’ ability to repay, considering income and expenses – which is not addressed in this bill at all.
We strongly urge the New York State Legislature to reject A.9634A/S.6985A and instead affirmatively strengthen and promote Community Development Financial Institutions (CDFIs) and other responsible lenders that are in the business of meeting community and small business credit needs in a safe, non-discriminatory manner, including:
- Support CDFIs that already provide affordable small-dollar loans, and whose mission is to serve underserved communities and lower-income New Yorkers;
- Encourage banks participating in the NYS Banking Development District program to make small-dollar loans in accordance with the FDIC’s best practices recommendations;
- Convene banks, credit unions, loan funds, nonprofits, and community groups to design and implement responsible small business and small-dollar loan programs.
The Empire Justice Center strongly opposes A.9634A/S.6985A.
For more information, please contact:
Kirsten E. Keefe
Empire Justice Center
119 Washington Avenue
Albany, NY 12210