Regulators Crack Down on Illegal Lenders
On Monday, New York State’s attorney general filed a lawsuit against an unlicensed online lender and two of its affiliates for violating the state’s usury laws capping loan interest rates. This is just the latest in a string of efforts at the state and federal level to crack down on unregulated lenders: last week the New York State Department of Financial Services ordered 35 lenders to cease lending to state residents. Attorneys general in Arkansas, Georgia and Virginia are pursuing legal action against unlicensed lenders, and several federal agencies are pressuring banks to block unregulated lenders from debiting repayments directly from borrowers’ checking accounts.
Advance America commends regulators for attempting to crack down on abuses by unlicensed, unregulated lending and prevent any mistreatment of consumers. Bad actors tarnish the good reputation of regulated lenders who operate within a complex framework of federal and state regulations. Advance America does not lend in New York or any state where our services are prohibited.
But while policymakers on the state and federal level correctly seek to protect consumers from the abusive practices of unsafe, unlicensed lenders, they must also carefully examine why so many consumers seek these services in the first place. The fact is that effectively prohibiting regulated short-term loans – either through an outright ban or through excessive regulation – does not alleviate consumers’ need for short-term credit. Rather, it forces many to choose riskier or more expensive options such as illegal lenders, or costlier alternatives such as bank overdraft programs or missing bill payments. American consumers appreciate having the choice of obtaining short-term loans with the protections offered by a state-licensed and regulated company.
Further – and importantly – whether it is gym memberships, newspaper subscriptions or loans, consumers are increasingly turning to new tools such as automatic debiting to pay their bills. While aggressively pursuing lenders who attempt to evade the law or fair consumer protections, regulators must ensure regulations evolve to reflect changing technology in consumer finance. It is essential that regulators not “throw the baby out with the bathwater,” and that they recognize the distinction between legitimate and illegitimate uses of these tools. Consumers are always best served when rules and regulations guarantee critical protections while preserving their ability to access needed credit options and emerging financial service tools.