Transcript Financial Frauds And Consumer Protection Division

Benjamin M. Lawsky, Superintendent of Financial Services
New York Coalition of CDFIs Statewide Conference
September 30, 2013
Joy Feigenbaum
Executive Deputy Superintendent
Financial Frauds & Consumer Protection Division
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About the New York State Department of
Financial Services
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The Department of Financial Services (“DFS”) opened on
October 3, 2011 pursuant to the 2011 Financial Services Law
(“FSL”), consolidating the former Banking Department and
Insurance Department into one agency.
The first DFS Superintendent is Benjamin M. Lawsky.
DFS is comprised of five divisions:
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1) Insurance Division;
2) Banking Division;
3) Financial Frauds and Consumer Protection Division (“FFCPD”);
4) Research and Capital Markets;
5) Real Estate Finance.
DFS has newly increased “gap” authority to regulate and enforce
rules against previously unregulated providers of financial
products and services.
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Financial Frauds and Consumer
Protection Division (“FFCPD”)
FFCPD includes:
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A combined Criminal Investigation Unit that includes the Criminal
Investigations Bureau of the former Banking Department and the
Insurance Frauds Bureau of the former Insurance Department;
A new Civil Investigations Unit of attorneys focusing on major
investigations and initiatives;
A disciplinary unit of attorneys focusing on enforcement against
insurance producers and licensed insurers for infractions of the Insurance
Law.
A Consumer Assistance Unit (“CAU”) that performs consumer education
and handles consumer complaints;
A Consumer Examinations Unit that performs consumer compliance, fair
lending and Community Reinvestment Act (“CRA”) examinations;
A new Student Protection Unit; and
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The Holocaust Claims Processing Office.
DFS’s Online Payday Lending
Investigation
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Payday lending involves short-term, small-value loans that are
typically structured as an advance on a consumer’s next
paycheck. Although marketed as being designed for
emergencies, payday loans often trap consumers in a cycle of
debt.
Most payday lending by non-bank lenders is illegal in New York.
These loans violate the state’s civil and criminal usury caps (16%
and 25% respectively) by charging interest rates as high as
1,095%. Payday lending is illegal in 15 states and D.C.
Non-bank, out-of-state payday lenders have moved onto the
Internet in an attempt to evade state usury laws like New York’s.
In 2010, 35% of all payday lending was done online, and by 2016
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that number is expected to rise to 60%.
DFS’s Online Payday Lending
Investigation
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In early 2013, DFS began an investigation into online payday
lending based on numerous consumer complaints.
In March 2013, DFS sent surveys to approximately twenty state
and nationally chartered banks.
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The goal of the surveys was to understand how payday loans flow
through the Automated Clearing House (“ACH”) electronic payments
network.
The Department learned from survey results and subsequent
discussions with banks that the ACH network does not currently
maintain adequate safeguards to prevent usurious online lending
into states with usury laws.
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DFS Demands 35 Online Payday Lenders
Cease Illegal Activity in NY
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In the course of the Department’s investigation, DFS uncovered
evidence that 35 online payday lenders were making illegal
payday loans in New York, with interest rates ranging from
116% to 1,095%.
On August 5, 2013, DFS mailed cease-and-desist letters to these
35 payday lenders directing them to stop making and offering
payday loans into New York.
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These lenders included a combination of domestic lenders, lenders
allegedly located outside the U.S., and lenders claiming an affiliation with
federally recognized Native American tribes.
The letters directed recipients to “confirm in writing to the Department
that [the lenders are] no longer solicit[ing] or mak[ing] usurious loans in
New York, and outline the steps taken to cease offering these loans to
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New York consumers.”
DFS Seeks Cooperation of Banks, Credit
Unions, and NACHA
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Also on August 5, DFS mailed letters to 117 state and nationally
chartered banks, state credit unions, and NACHA, the private
association principally responsible for regulating the ACH
network.
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The letters sought cooperation from financial institutions and NACHA to
stop illegal payday lending into New York to the extent permitted by
federal law and NACHA rules.
DFS has met and continues to meet with financial institutions,
NACHA, and other key players to develop solutions to the
problem of illegal loans flowing through the ACH network.
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Responses from Payday Lenders, NACHA,
Operators, and Financial Institutions
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Since August 5, 22 of the 35 payday lenders have taken steps to stop
offering and making usurious loans in NY.
On August 9, NACHA wrote a letter to certain financial institutions
warning them that originating for payday lenders making usurious
loans into New York may violate NACHA rules. NACHA demanded
that these institutions terminate their relationships with lenders who
were violating NACHA rules.
DFS has met with one ACH Operator, the Clearing House (EPN), and
plans to meet with the Federal Reserve (FedACH) soon.
Financial institutions, including members of the NY Bankers’
Association, have been meeting with DFS to further the goal of a
cooperative solution to address shortcomings in the ACH network.
DFS welcomes additional meetings with CDFIs to further the same
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goal.
Other DFS Actions Related to Payday
Lending In 2013
In February, DFS issued a letter to debt collectors warning
them that any attempt to collect on a void, illegal payday
loan is illegal.
 In April, DFS fought efforts to create loopholes in New
York’s usury laws:
 DFS opposed Assembly Bill 1113-A (the “short-term
financial services loan act”) that would have allowed
licensed check-cashers to offer criminally usurious
payday loans.
 Due in part to DFS’s opposition, this bill did not pass.
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Going Forward: Protecting Consumers’ Accounts
and Developing Safe Short-Term Loans
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New York has historically been a leader in protecting consumers
from predatory short-term, high-interest payday loans.
DFS encourages financial institutions to protect consumers from
illegal online lending:
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Better training of staff around Reg E compliance is key to helping
consumers avoid overdraft fees when exercising their right to stop
payment, or revoking their ACH authorizations.
Enhanced due diligence with respect to high-risk originators such as
payday lenders.
DFS supports consumers’ access to safe and affordable shortterm loans from banks and credit unions.
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Going Forward: Developing Safe Alternatives
to Payday Loans
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Payday lending is harmful and illegal in NY, but consumers with poor
credit histories sometimes need small-dollar loans.
DFS is examining how NY consumers can access safe and legal smalldollar loans rather than payday loans. Alternatives may include:
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Encouraging mainstream lenders to provide safe small-dollar loans that
comply with NY’s usury caps and have longer-term repayment options
(models may include the FDIC’s pilot and the National Federation’s
“Borrow and Save” pilot);
Alternative delivery channels such as debit cards;
Innovative strategies for encouraging consumers to save and create “rainy
day” funds;
We need your input as we explore safe alternatives to payday loans.
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35 Online Lenders Receiving Cease-and-Desist
Letters (*ceased lending in NY)
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*ABJT Funding, LLC d/b/a Dollar Premier
Advance Me Today
American Web Loans
*Archer Direct, LLC
*Bayside Loans
*BD PDL Services, LLC d/b/a Bottom Dollar Payday
*Blue Sky Finance, LLC d/b/a ExtraFunds Cash
BS Financial Group Inc. d/b/a Payday Accelerated
*Cash Jar
*Cash Yes
*Discount Advances
*DMA Financial Corp. d/b/a VIP Q-Loot
*Eastside Lenders, LLC
*Fast Cash Personal Loans
Golden Valley Lending
*Government Employees Credit Center, Inc. d/b/a
Cash Direct Express
Great Plains Lending, LLC
Horizon Opportunities, LLC d/b/a Lifestyle Services
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Loan Point USA Online
MNE Services, Inc. d/b/a AmeriLoan,
UnitedCashLoans, US Fast Cash, 500 Fast Cash
MobiLoans, LLC
*MyCashNow.com, Inc.
National Opportunities Unlimited, Inc. d/b/a
Itsmypayday.com, TheCashSpot.com
*Northway Broker Ltd. d/b/a Zip19
*PayDayMax, Ltd.
*Peak 3 Holding, LLC d/b/a iCashLoans
Plain Green, LLC
Red Rock Tribal Lending, LLC d/b/a
CastlePayday.com
*SCS Processing d/b/a Everest Cash Advance
SFS, Inc. d/b/a One Click Cash, Preferred Cash
Loans
*Sonic Cash
*Sure Advance, LLC
*Tribal Credit Line d/b/a Quick Credit 911
*United Consumer Financial Services, Inc. d/b/a
EZPaydayCash
*Western Sky Financial, LLC
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We Want to Hear from You
DFS is always interested in learning about financial
practices that may be harmful to consumers,
particularly issues that are underreported and emerging.
 Methods of sharing information with DFS:
 Consumers and practitioners may file formal
complaints:
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Practitioners and consumers can contact CAU using our hotline at
(800) 342-3736
Practitioners and consumers should report suspected financial or
insurance fraud to DFS at (800) 342-3736.
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may request meetings with DFS staff.
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Contact Information
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Executive Deputy Superintendent Joy Feigenbaum:
(212) 480-6082
Deputy Director, FFCPD Nancy Ruskin:
(212) 480-2299
Director, Consumer Examinations and Community
Development, Gwen Robinson: (212) 709-3591
Director, CAU Gille Ann Rabbin:
(212) 480-4693
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