Sep 06, 2013 Sean Albert
The wrongfully waged fight against short term loans brought on by administrators within the New York state government continues to try to turn consumers against the industry as a whole. In their actions and statements, Governor Andrew Cuomo and Superintendent of Financial Services Benjamin Lawsky are attempting to shut down online lenders who allow New Yorkers to borrow money form non-traditional services.
But since consumers are the ones searching for such lines of credit, showing that there's clearly a need for such alternative finance within the state, supporters of the sector are asking why officials are railing against it. Currently, the majority of online lending companies have been driven out of operation because of laws regarding the interest that can be tacked onto such loans. The allowed 25 percent rate simply isn't enough to ensure that the businesses will make back the capital needed to cover overhead charges and make sure their employees can be paid.
It's not only Lawsky and Cuomo who are making public statements that tend to only have a basis in truth and mislead consumers to think the loans are overtly unfair and costly - neither of which are true. One particular publication, The New York Times, has become very vocal in support of the government's stance. However, other groups like the Online Lenders Alliance are making it clear that not only are these leaders standing on shaky legal footing - because many of the lenders targeted are run by Native American tribes only subject to federal laws - but they are using many misleading or plain untrue facts in their arguments.
New York Times takes a side in the fight
Much of the language used in a recent article in The New York Times seems to be in support of Lawsky and Cuomo's witch hunt. For instance, the text notes that one particular lender, Western Sky, has already buckled, and other actions may on the way. Moreover, the news outlet said that these financial options could set consumers' wallets back for months.
However, the newspaper failed to point out that short term loans were never meant to be taken out for more than a few months, and legitimate enterprises make this clear to their clients. Plus, though The Times said that people will have to contend with massive fees, if the credit options are used correctly, the prices are far less than charges for making late payments, overdrafting bank accounts and other expenses.
The Western Sky situation explained
The fact is that when the New York government issued cease and desist letters to 35 online lenders, many of these communications were doled out with no authority. A number of the businesses that received the messages are run by Native American tribes. As of the 19th century, these groups have no responsibility to follow state laws, only those issued by the federal government. As such, New York-based authorities have no say in their operations.
So when it came out that Western Sky was shutting down because the heat was put on them, some in the industry were disheartened. However, not only is the company not a member of the Online Lenders Alliance (OLA), but it is not run by a legitimate sovereign tribal nation. The New York Times failed to highlight this in its recent article. This means that other companies thinking of taking the same action should not look to Western Sky as an example of what they should do.
OLA spokesman Peter Barden stated that all OLA members operate well within the law and it's troubling that a number of regulators are trying to intimidate various players into backing lenders into a corner, because the consumers are the ones who will lose out in the end, Money News reported.