A New York lender licensing proposal that threatened to create new regulatory burdens for financial service providers and to potentially adversely affect credit availability to New York residents and businesses, has been removed from a New York State budget bill. The amended budget bill, S. 2008-C/A. 3008-C, has passed both houses of the New York State Legislature and been delivered to Governor Cuomo for executive action. The controversial lender licensing proposal, which appeared in Part EE of the initial proposal, has been “intentionally omitted” from the amended budget bill passed by the Legislature.
The proposal would have revised the New York Licensed Lender Law to significantly expand the scope of its licensing requirements. The proposal would have extended the lender licensing requirement for the first time to: (1) lenders making consumer-purpose loans of $25,000 or less to individuals at interest rates of 16 percent per annum or less; (2) lenders making business-purpose loans of $50,000 or less to corporations, limited liability companies, and certain other business entities (regardless of interest rate); (3) lenders making business-purpose loans of $50,000 or less to individuals and sole proprietorships at interest rates of 16 percent per annum or less; and (4) persons that solicit loans in those amounts and also purchase or otherwise acquire such loans or other “forms of financing”, or arrange or otherwise facilitate the funding of such loans.
The current licensing requirement under the New York Licensed Lender Law is limited to certain loans made at rates of interest that the lender is not otherwise authorized by law to charge without a license. This interest rate trigger means, for example, that the licensing requirement does not apply to loans made at interest rates of up to 16 percent per annum because a lender is permitted to make such loans pursuant to the New York General Obligations Law. It also means that loans made by out-of-state state-chartered banks, whose interest rate authority is derived from federal law, do not trigger the lender licensing requirement. The proposal would have removed the licensing rate trigger from the Licensed Lender Law, thereby significantly expanding its scope.
The Superintendent of the New York Department of Financial Services (NYDFS) recently argued that the OCC proposal to grant special purpose national bank charters to financial technology (fintech) companies would have significant negative effects, including on existing state regulatory regimens applicable to nonbanks, and would encourage fintech companies to engage in regulatory arbitrage to avoid state consumer protection and usury laws. Although there had been proposals in prior years to repeal the interest rate trigger from the New York Licensed Lender Law and to raise the dollar limits on covered loans, the New York budget bill proposal was viewed as a direct response to the perceived threat of the OCC proposal. Thus, this may not be the last attempt by the New York authorities to enact legislation to broaden the scope and reach of their licensing and related requirements, should the OCC continue to implement its special purpose charter proposal.
The budget bill also initially contained a proposal that would have empowered the NYDFS to license servicers of student loans made to New York residents. The proposed student loan servicer licensing requirement, which appeared in Part Z of the initial proposal, also has been “intentionally omitted” from the amended budget bill passed by the Legislature.