Governor Andrew M. Cuomo today announced 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 attempt to collect a debt on a payday loan since such loans are illegal in New York. 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,” Governor 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, “All debt collectors in New York should know that it is illegal to try to collect payday loan debts. We 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. However, Internet payday lending is just as unlawful as payday lending made in person in New York. No matter what method is used to make the loan, usurious and illegal payday loans are not valid debts and cannot lawfully be collected on. Superintendent Lawsky’s letter makes that point clear to the debt collection industry.

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, said, “AARP commends Superintendent Lawsky's actions enforcing New York's strong laws and protecting state residents. Payday loans are predatory in nature and create a cycle of debt for many New Yorkers. These kinds of loans are illegal in New York and should be kept that way.”

Linda Levy, CEO, Lower East Side People’s Federal Credit Union/PCEI, Inc., said, “After 27 years of making affordable small dollar loans, we applaud this reminder that pay day loans are illegal in the state of New York, and must remain so in order to protect all New Yorkers from the downward spiral of high interest rate debt.”

Robert A. Martin, Associate Director, District Council 37 Municipal Employees Legal Services, said, “Payday loans trap working people into an unending cycle of payments at usurious rates that violate New York law. The DFS letter sends a strong statement to debt collectors that they may not collect on these illegal loans against the residents of our state.”

Russ Haven, NYPIRG Legislative Counsel, said, “Governor Cuomo is standing up for working people by warning debt collectors off trying to collect illegal 'payday' loans from New Yorkers. The governor and the Department of Financial Services are preventing an 'end run' around the state's usury laws and protecting New Yorkers from the predatory financial products that trap consumers in a vicious debt cycle and impoverish communities. These loans, with their sky high interest rates and fees, undermine economic recovery and are antithetical to the calls for raising the minimum wage in New York.”

Carolyn E. Coffey, Supervising Attorney, MFY Legal Services, Inc., said, “We applaud DFS for sending a strong message to debt collectors who try to collect on illegal payday loans and abuse our working poor clients.”

Susan Shin, a staff attorney with NEDAP in New York City, said, “Superintendent Lawsky's letter sends a strong message to both debt collectors and payday lenders that their unlawful practices won’t be tolerated in New York State. Not only is debt collection on payday loans unlawful in New York, but we've seen debt collectors engaging in especially outrageous attempts to collect on payday loans against low income New Yorkers, fraudulently claiming they will arrest or press criminal charges against them.”

Kristin Brown Lilley, Director of Policy Advocacy, Empire Justice Center, said, “While it may be impossible to stop predatory lenders from reaching into NY through the internet and other means, the Department of Financial Services’ letter affirms that every payday loan with an interest rate over our 25% cap is indeed illegal in New York State. Empire Justice applauds Superintendent Lawsky for sending a strong message that crooks cannot collect on these illegal debts.” 

February 22, 2013

Re: Letter to all debt collectors operating in the State of New York:

This notice is to remind all persons and entities collecting debts in New York that they should not seek to collect on illegal, usurious loans made in New York, including payday loans. This includes illegal, usurious payday loans made in New York over the Internet and via phone and mail. In New York, under General Obligations Law § 5-501 and Banking Law § 14-a, loans or forbearances under $250,000, made by non-bank lenders or New York-chartered banks, with an interest rate exceeding 16 percent per annum, constitute civil usury and are illegal. Further, under New York Penal Law §§ 190.40-42, loans made in New York with an interest rate exceeding 25 percent per annum constitute criminal usury.

Payday loans are illegal in New York under both civil and criminal usury statutes. Payday loans are short-term loans, typically an advance on a future paycheck or other income source. When the fees are annualized, the interest rates are extremely high, often as high as 400%, and hence these loans are usurious.

Subject to the provisions of General Obligations Law § 5-511, loans offered in New York by New York-chartered banks or non-bank lenders, with an interest rate above the statutory maximums, including payday loans, are void and unenforceable. 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.

Very truly yours,

Benjamin M. Lawsky 
Superintendent of Financial Services