New York governor — and your friend and mine — Andrew M. Cuomo is doing one of the things he does best: going after debt collectors in his home state. Specifically, that intersection of debt collectors and payday loans.

On Friday it was announced that all collectors in New York State reminding them all that it is illegal to attempt to collect a debt on a payday loan since such loans are illegal in the Empire State.

In case you missed it: ILLEGAL.

“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.”

The real fault is, of course, with payday loan vendors — those shady shops usually in strip malls next to a places that sell knock-off colognes and modeling services for people with floating eyes and hairlips. However, the press is directed at collection agencies.

The full text of the letter follows:

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 § 14-1(1), loans or forbearances under $250,000, made by non-bank lenders or New York chartered- banks, with an interest rate of 16 percent per annum or greater, constitute civil usury and are illegal. Further, under New York Penal Law §§ 190.40-42, loans made in New York with an interest rate of 25 percent per annum or greater 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

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