The New York State Department of Financial Services (NYSDFS) wants more regulations for online lenders. We’re wondering if such a move could lead to changes how acquiring banks give approvals for online lending merchant services. The proposal doesn’t name payday lenders by term – actually, the proposal doesn’t reference any specific type of lender – but such news should keep all lenders on alert, even those outside of New York.
The directive came from the state’s governor, Andrew Cuomo, and is aiming for protection for consumers, licensing and supervision by the NYSDFS and lending regulations on all transactions.
If it all sounds familiar, it should.
We haven’t heard much from the Consumer Finance Protection Bureau (CFPB) recently, and certainly nothing about Operation Choke Point, the federal government’s stalled initiative to place restrictions on certain high risk industries – payday lending being one of them. But online lenders are launching and succeeding, with businesses willing to pay back at a high interest rate rather than await an approval from a bank, which can take weeks.
Governor Cuomo’s reasoning for the proposal is that he feels his state’s usury (moneylending) laws need to apply to all transactions and lenders: banks, in addition to the third-party non-bank lenders (such as OnDeck, Lending Tree or American Web Loan) who may not be licensed in the state. This will also include smaller online lenders, those for which we provide online lending merchant services.
A brief history
If the NYSDFS proposal sounds familiar, it should. We blogged back in 2015, when the Consumer Finance Protection Bureau (CFPB) was wielding its power and influence on high risk merchants and industries such as lending, pharmaceuticals and tech support among others. We supported some of the CFPB’s initiatives, but as a high risk merchant account provider, we thought the CFPB was targeting the industries themselves – not only the nefarious merchants – thus turning a blind eye to the legitimate merchants.
In the lending industry, the CFPB wanted three specific reforms, two with which we agreed and another we felt needed further examining.
- For the lender to ascertain the borrower’s ability to repay, despite the high interest rate (agree)
- Limits on contacting the borrower when trying to collect (agree)
- Lender’s access to borrower’s bank account (case-by-case basis)
The CFPB is still around, but its leader, Richard Cordray, has since vacated his position (he is now running for governor of Ohio). Thus, payday lenders are still operating as they have been.
So what’s the point of the NYSDFS proposal?
Mainly, oversight and compliance.
Online lenders may not be in the crosshairs of Operation Choke Point anymore, but that doesn’t mean they are flying under the radar. We have some questions about the proposal by the NYSDFS and its impact:
- If it passes, will other states follow?
- Will the proposal make obtaining online lending merchant services more difficult?
- Will banks start shunning the industry, as many have for other high risk industries?
ACH and check processing: the Solution for online lending merchant services
The best payment processing solution for online lenders, we feel, is ACH or check processing, a solution that is a shadow of itself from as little as one year ago. The 2.5-year phase of same-day ACH completed on March 16, 2018; thus banks receiving funds from originating banks must make those funds available by 5 p.m. that day.
This was a process that we’ve long applauded. As more has happened to the payments industry in the last five years than the last 50, the same-day ACH initiative has kept check payment processing relevant in an ecosystem in which payments are more rapid and efficient than ever.
Our online lending merchant services experts are on hand Monday through Friday to guide you through our application process, including the KYC documents merchants need to present, timetables for approvals and whatever questions and issues arise. Speak with an account manager today at 1-800-530-2444.