Payday Loan Times

The national trade group for payday advance lenders has called on its members nationwide who make loans over the Internet to comply with all state laws and to be licensed in each state in which they do business.

The effort by the Community Financial Services Association announced Tuesday, if complied with by all payday lenders, could put an end to a lot of illegal short-term loans now available online to New Yorkers. That’s because New York state already bans such loans through its interest rate cap and other restrictions, and no payday lender is licensed to operate stores in the state.

However, consumers have been able to get high-cost fast cash loans online from a variety of sources, which a spokeswoman for the trade group said was legal. Now, its members would be prohibited from making loans that violate state law. Violators risk losing their membership in the industry’s only trade group.

“With this new change in best practice, our members are unlikely to lend to someone who has a New York address due to the regulatory environment,” said CFSA spokeswoman Lyndsey Medsker. “We want to be responsible. We want to protect consumers. With this new best practice, we won’t lend to people whose state regulations don’t allow it.”

But CFSA, whose members are all U.S.-based, represents only about 60 percent of the storefront easy payday loan locations in the country. And many of the online lenders are actually based offshore in countries such as Costa Rica, and don’t necessarily follow state or federal laws.

“Someone who lives in New York can still go online and get a loan,” Medsker said. “They’re just getting it from someone who isn’t necessarily following any rules.”

Consumer advocates, who denounce online payday loans as abusive and predatory, and have sought to prohibit them nationwide, downplayed the new rule’s significance.

“Once again, CFSA’s ‘Best Practice’ is to comply with state laws,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America. “Operating within the law is the least you should expect, not a ‘best practice.’ ”

Payday loans are short-term, small-dollar loans of about two weeks made against an upcoming paycheck or postdated check, or with authorization to take the repayment electronically from the consumer’s checking account. The personal loans, typically for amounts ranging from $100 to $500, carry finance charges of $15 to $30 over the two weeks, which equals an annual interest rate of 390 percent to 780 percent.

The loans are made by storefront lenders, check cashers and pawn shops, and are also available through toll-free numbers or the Internet. According to Little Rock, Ark.-based investment bank Stephens Inc., which has researched the industry for years, there are an estimated 24,200 U.S. stores.

In all, Stephens reports, the cash advance loan industry generates $47 billion in annual fees, including $5.65 billion — or 14 percent — online.

New York criminal law prohibits charging interest of more than 25 percent annually, and its civil banking law restricts unlicensed lenders further to just 16 percent. The state also bars check cashers from making loans and from accepting post-dated checks. That has effectively kept the payday lending industry out, as the most a store could legally charge is 95 cents for every $100 loaned.