Aug 30, 2013 Sean Albert
Recent developments that have occurred in New York threaten to undermine the vibrancy of the short term lending industry across the state.
Earlier this month, Benjamin Lawsky, the superintendent of the New York Department of Financial Services, ordered 35 online small dollar lenders to cease operations in New York, Bloomberg Businessweek reported. Also, he contacted 117 separate banks asking them to shut off the lenders' electronic payment platforms they use to extend loans.
Now, two Native American tribes have filed suit against Lawsky, claiming that he has no authority to regulate their practices because they operate on reservations, which are only subject to regulations levied by the U.S. Congress.
According to the source, the two tribes were the Otoe-Missouria Tribe of Indians and the Lac Vieux Desert Band of Lake Superior Chippewa Indians of Oklahoma and Michigan, respectively.
Also, there are three Native American loan companies and two regulatory agencies that are also suing Lawsky for his actions.
Many in the payments and lending industry have publicly supported the rights of the lenders in question, including the Online Lenders Alliance (OLA). Bloomberg noted that the OLA recently called on the Electronic Payments Association to urge the banks to allow lenders to access their payment processing portals. OLA officials believe that the lending outlets are operating within their rights and have been a useful source of finance for New Yorkers.
Short term lending benefits
Short term loan products can be extremely beneficial for consumers and business owners. They are unique from other loan offerings because they allow individuals to access credit rather quickly compared to other lending offerings.
As The Houston Chronicle noted, such access to operating capital can be beneficial for enterprise leaders who may not be able to meet operational demands in the event that their revenue stream becomes insufficient. Also, it's a great source of emergency funding that can help consumers and businesses navigate lean economic periods or quickly access funds to address damages that can result from natural disasters.
The particular advantages that short term loans have over traditional credit products show that they are useful financial products. Despite that fact, lawmakers in New York have taken aggressive steps to regulate the industry into submission. Instead of working to limit the practice, New York officials would be well advised to construct legislation to support the industry and educate consumers about the best financial practices for short term loans.