In a disturbing new sign of economic distress, pay day loan sharks are back to pray on New York’s poorest neighborhoods. Payday lenders, check cashiers, number racketeers, and newly prestamistas (Spanish for lender) are dragging vulnerable consumers into a vicious cycle of unsustainable debt. This is a multimillion-dollar underground banking business where customers with shaky credit get short-term cash at sky-high interest rates, often securing the loan against the borrower’s upcoming paycheck. Under NY state law, it is illegal to charge consumers an interest rate of 25 percent or more. As reported by the NY Post, these unscrupulous lenders, however, have an annual percent yield of 400 percent or higher.
Earlier in the month, the Consumer Financial Protection Bureau set new rules hoping to crack down on these practices. Lenders will be required to conclude that their customers can pay back the loans before advancing any cash, and they will have fewer means of piling up debts and fees onto their consumers. The rules, however, won’t go into effect until the end of 2019. The CFPB found that roughly 80 percent of payday loans are “re-borrowed” within a month, meaning that customers take out a new loan to pay the existing one. Further, about 25 percent of all payday loans are borrowed nine times or more.
“As much as it wants to, the attorney general’s office in New York does not have enough staff to police this terrible business,” said Isaac Rodriguez, Chief Executive of Provident Loan Society, a nonprofit lender founded in 1893. “These bad lending practices are taking place in community centers, barber shops, dry cleaners and in other places people gather. You could be strapped for cash, or be one of the so-called affluent poor, so you take out the loans with sky-high interest rates.”
Amy Spitalnick, a spokeswoman for the New York AG’s office, defended her office’s effectiveness in fighting payday lending saying, “Our office follows all leads that are referred to us, and our investigations have resulted in relief for thousands of New Yorkers”.
By: Hellen Zaboulani