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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 7, 2013

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New York Governor Andrew Cuomo has sent out a notice letter to debt collectors across his state. He has informed them not to collect on what he calls, “illegal, usurious loans made in New York, including payday loans.”

According to a press release from the New York Department of Financial Services, payday loans are illegal in New York due to the state’s criminal usury law that limits interest rates to 25 percent.

The release continued to explain that lenders in New York have been trying to avoid regulation by providing payday loans online. Regardless of being financed over the internet, this debt, according to the release, is still illegal to collect within the state of New York.

Adding teeth to their words, the Department of Financial Services said that it would “continue to monitor lenders and debt collectors to protect consumers from usurious lending, including payday lending, through aggressive enforcement of law violations.”

A large number of prominent New York officials and organizational leaders echoed the sentiments of the Governor and Department.

Beth Finkel, State Director for AARP in New York, Russ Haven with NYPIRG Legislative Counsel, and Linda Levy, CEO of the Lower East Side People’s Federal Credit Union, all elaborated on their support of the notice by stating in the press release that payday loans caused borrowers to suffer a financial downward spiral and enter into a cycle of debt.

While additional leaders and officials offered supportive and optimistic comments in the press release, members of the payday loan industry maintained a far more realistic viewpoint.

Jamie Fulmer, Senior Vice President of Public Affairs at Advance America, told loans.org how the payday loan industry would respond to the Governor’s stance and the notification.

“It is worth noting that the explosion of illegal lenders in New York and elsewhere is a classic example of unintended consequences: where states do not allow regulated storefront lending, consumers do not experience fewer financial challenges, they are simply left with fewer dependable and accountable credit options,” said Fulmer.

He continued to explain that Advance America, as well as other lenders, abide by the Fair Debt Collection Practices Act while maintaining transparency and clarity around lending transactions.

Unfortunately, not all lenders are the same as Advance America.

Susan Shin, a staff attorney with NEDAP in New York City, claimed in the press release that payday loan lenders had been intimidating borrowers by “fraudulently claiming they will arrest or press criminal charges against them.”

Fulmer countered this by explaining that “consumers are best served when state laws enable a market for responsible lenders to provide regulated services; mandate strict consumer protections; and foster competition. They would also benefit from the Consumer Financial Protection Bureau employing its enforcement powers to bring these unregulated online lenders within the confines of the law.”

Borrowers in New York will have to hold their breath and see what future changes, or lack of changes, come to the state’s payday loan industry.