Tonawanda News — New York state will begin cracking down on debt collectors regarding the so-called “payday loans.”
Gov. Andrew Cuomo said Friday that the New York State Department of Financial Services has sent letters to all debt collectors in New York stating that it is illegal to collect on the loans. Payday loans are short-term loans, typically an advance on a paycheck, with extremely high interest rates that violate New York’s criminal usury law, which limits interest to 25 percent. Considering the fees on an annual basis, the interest rate can be as high as 400 percent.
“Today’s notification will remind debt collectors in the state that such practices are illegal in New York,” Cuomo said. “Studies clearly show that payday loans are not a solution for people with low incomes, but rather a high cost debt trap. That’s why they are illegal in New York, and the State will continue to protect consumers from these misleading loans.”
Superintendent of Financial Services Benjamin M. Lawsky said his office will aggressively enforce the law to protect all New Yorkers and “especially low income individuals who are all too often abused by unscrupulous lenders and debt collectors.”
Lenders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, hoping to avoid prosecution, according to Cuomo, who added that Internet payday lending is just as unlawful as payday lending made in person in New York.
The letter states, “Debt collectors should take note that attempts to collect on debts that are void or unenforceable violate state and federal law. The Department of Financial Services will continue to monitor lenders and debt collectors to protect consumers from usurious lending, including payday lending, through aggressive enforcement of law violations.”
Beth Finkel, State Director for AARP in New York, commended the announcement.
“Payday loans are predatory in nature and create a cycle of debt for many New Yorkers,” she said. “These kinds of loans are illegal in New York and should be kept that way.”