New York cracks down on exorbitant lending rates

Members of New York's short term lending community that have been violating usury laws are finding themselves in hot water with government authorities.

Earlier this week, New York State's financial regulator, Benjamin Lawsky, sent letters to 35 online lenders who had been offering short term loans with interest rates exceeding 500 percent, The New York Times reported. The letters ordered the offending lenders to cease and desist issuing the illegal loans within two weeks of receipt.

Currently, New York law caps lending interest rates at 25 percent, and is one of 14 states with interest rate regulations. However, online short term lenders are not the only ones to coming under scrutiny. The state is also investigating larger banks that support these operations, which includes Bank of America, the newspaper explained.

However, some have pushed back against the state's decision. "Rather than restricting consumer choice, state officials should be focused on finding a federal solution to ensure consumers have access to the credit options they need and are demanding," Peter Barden, spokesman for the Online Lenders Alliance, told The Times.

The federal government has also become more involved in regulating the short term lending industry. Earlier this year, the Consumer Financial Protection Bureau conducted research looking at borrowing habits to identify which sectors are not abiding by fair lending practices.