New York’s ban is one of the nation’s toughest. Whether they’re made online or at a strip mall, loans with triple-digit APRs (annual percentage rates) violate the state’s 1976 usury law, which caps rates at 16 percent. The state lacks the power to regulate commercial banks – such as Bank of America, Chase, and Wells Fargo – who are overseen at the federal level and allowed to charge 29 percent or more on credit cards. But payday lenders are considered non-banks, so licensing and regulation fall to the states. First-degree criminal usury is a Class C felony that carries a maximum sentence of 15 years.
Any non-bank lender who charges more payday loans in Bowling Green than 16 percent interest in New York is subject to civil prosecution; charging above 25 percent can subject lenders to criminal penalties
In 2004, when Elliot Spitzer, then attorney general, discovered that lenders were circumventing the state law by lending on-line, he sued one of the lenders, Las Vegas-based Cashback Payday Loans, and shut down servers in the state that had been throwing up payday loan Websites, forcing Cashback to pay restitution to customers. In 2009, a year before Bradley got his first Internet payday loan, then-attorney general Andrew Cuomo settled with County Bank of Rehoboth Beach, Delaware, which let Pennsylvania-based Internet payday lenders Telecash and Cashnet use its bank charter to make Internet payday loans in New York. A $5.2 million settlement was distributed to more than 14,000 New Yorkers who had taken out their online loans, with some burned borrowers receiving more than $4,000.
Consumer advocates and state regulators alike say that Robert Bradley’s experience is hardly unique. “The use of the Internet to evade New York’s strong consumer protections against payday lending and its exorbitantly high interest rates is a serious concern,” says Benjamin Lawsky, the state’s superintendent of financial services. “Payday lenders should know that making loans to New Yorkers puts them at risk of prosecution and that they have no legal right to collect on any loans they make here.”
Payday loans, whether made by storefronts or on the Internet, are defined by their relatively small dollar amounts and excessive annual percentage rates (APRs), which routinely run to three and four digits. Bradley’s first loan, for example, with a $90 fee on a $300 two-week loan, was the equivalent of a 782 APR, according to payday loan interest calculators.
Payday lenders first surfaced at check-cashing stores in the South and Midwest about twenty years ago, and remained regional enterprises throughout the 1990s. By 2003, there were only about 3,000 payday storefronts in the entire country. Today there are around 20,000.
Despite the successive lawsuits, Internet payday loan companies never stopped lending to New Yorkers
The number of Internet lenders is smaller, but then again a single Website can reach many more people than a storefront can. In a report, San Francisco based JMP Securities analyst Kyle Joseph, an expert on the industry, put the number in the hundreds. Jean Ann Fox, director of consumer protection at the Consumer Federation of America, says estimates range from 150 to 250 Internet payday lenders operating nationwide. Peter Barden, a spokesperson for the Online Lenders Alliance, an Alexandria, Virginia–based trade organization representing Internet lenders, says his organization has over 100 members, and that “a reliable industry estimate” on the number of lenders is 150.
John Hecht, in a January report for the San Francisco-based investment bank JMP Securities, found that 35 percent of all payday loans were made on the Internet in 2010. Hecht, now an analyst at Little Rock investment bank Stephens Inc., believes .