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State Lawmakers Slam Trump Plan to Zap Interest Cap on Loans

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State Sen. James Sanders Jr. (D-Queens)

New York State Senate

More than 50 state lawmakers voiced strong opposition Thursday to a Trump administration proposal that would override New York State’s 25% interest rate cap for borrowers and allow high-cost, high-fee loans — including those issued online.

Banking committee chairs Sen. James Sanders Jr. (D-Queens) and Assemblymember Thomas J. Abinanti (D-Westchester) and colleagues warned that the regulatory change “would eviscerate New York’s longstanding usury laws and contravene our authority as lawmakers” by “legalizing payday lending and other debt traps long banned in our state.”

The comments were submitted to Acting Comptroller of the Currency Brian P. Brooks, whose agency, part of the U.S. Department of Treasury, charters federal banks.

State Attorney General Letitia James meanwhile joined 23 of her counterparts to ask the comptroller to rescind the rule.

The Trump proposal, known as the “true lender” rule, would allow online lending platforms, retailers and other sources to offer loans made by federally chartered banks, which are not subject to state interest rate limits. Charging 25% or more is a felony in New York.

The administration is acting following court decisions, including one in a 2015 federal appeals court case affecting New York, that limited the power of lenders to traffic in high-interest loans debts issued by state-chartered banks.

The online lending industry has grown rapidly in recent years, contributing to record levels of consumer debt even before the economic upheaval prompted by the coronavirus pandemic. Until joining the federal government in March, Brooks was on the board of online lender Avant, which charges up to 35.95% annual interest on consumer loans. 

Some lenders offer short-term loans with even higher annual interest rates, into the triple digits. 

‘Have We Learned Nothing?’

Brooks gave 45 days for public comments, an unusually short period that ended Thursday, despite a request for an extension by American for Financial Reform Education Fund, Center for Responsible Lending, Consumer Federation of America and other groups.

At an online news conference on Thursday held with counterparts from New Jersey’s legislature, Sanders and Abinanti warned of a grave threat to low-income people already reeling from the impacts of the pandemic, economic crisis and racial conflict.

“What looks like an obscure tweak to a banking regulation is actually a Trump administration attempt to eviscerate state laws,” said Abinanti. “Everyday people and small businesses are desperate for money to survive. They’re prime targets for deceptively marketed loans.”

Sanders warned of efforts to exploit economic desperation that pose a particular threat to Black and low-income New Yorkers, little more than a decade after banking deregulation spurred a previous crisis. 

“Why are we here? Have we learned nothing?” he asked. “I would suggest to you that we have learned, but people have learned that there’s money to be made in poverty and we’re going to soak the poor to the last dollar that they can come up with.”

The industry trade group Online Lenders Alliance, in comments submitted to Brooks Thursday, championed bank partnerships with digital lenders as giving consumers access to loans they otherwise would not be able to obtain. 

“Online lenders provide benefits to consumers, particularly those in underserved communities, with fast, safe and convenient choices that simply are not available through traditional lending markets,” the group said in its comment.

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