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A multi-state investigation into the payday advance industry will focus on whether nearly a dozen companies in the fast-growing industry are breaking payday loan laws.
The survey, which was announced on Tuesday by the New York State Department of Financial Services, is expected to take a close look at business practices that vary widely from company to company in an industry that does not fully align with business practices. existing regulations. Critics allege that in some cases consumers pay loan-equivalent fees with triple-digit annual percentage rates.
“High-cost payday loans are under scrutiny in New York City, and this investigation will help determine whether these payday advance practices are usurious and hurt consumers,” Linda Lacewell, New York City’s superintendent of financial services. said in a press release.
Regulators from Connecticut, Illinois, Maryland, New Jersey, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Texas and Puerto Rico also participate.
Payday advance companies typically charge a fee to access income that workers have already earned, but have not yet received due to lags in the payroll cycle. Often the prices are much lower than those charged by payday lenders, but fee structures vary widely in the nascent industry.
Some companies partner with employers, who offer the products as a benefit to employees. Other companies bypass employers and offer money directly to consumers. Instead of being deducted from the employee’s next paycheck, the advances must be repaid by the customer. Therefore, vendors must align with other billers at the end of the payment cycle.
Consumer advocates argue that if the customer has an obligation to repay the advance, the transaction should be treated as a loan. They contested California legislation this would exempt direct-to-consumer businesses from state lending laws.
Companies in both categories are receiving requests for information from New York regulators. In total, the letters are sent to 11 companies, according to a source familiar with the matter.
The investigation appears to come from a former New York financial services department investigation Earnin, a direct-to-consumer sales company, was about concerns the Palo Alto, Calif., company was bypassing loan laws in the Empire State. Under New York law, annual interest rates greater than 16% are civil usury.
Earnin is among the companies to receive requests for documents in connection with the latest investigation, the New York Post reported.
In announcing the investigation, regulators in New York expressed concern about companies collecting illegal interest rates under the guise of tips and fees. In Earnin’s business model, users can choose to pay a tip. Critics have argued that customers are encouraged to do so, but the company maintains that the tip is optional.
“This is a whole new model,” Earnin said in an emailed statement, “so we await and welcome questions from regulators like the New York Department of Financial Services.”
PayActiv, which is based in San Jose, Calif., And in partnership with employers, confirmed that it had also been contacted to provide information.
“We welcome the surveillance of the emerging wage industry and we support efforts to protect consumers,” PayActiv chief operating officer Ijaz Anwar said in an email.
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