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New York Coalition of CDFIs Statewide ConferenceSeptember 30, 2013

Joy Feigenbaum Executive Deputy Superintendent

Financial Frauds & Consumer Protection Division

Benjamin M. Lawsky, Superintendent of Financial Services

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About the New York State Department of Financial Services The Department of Financial Services (“DFS”) opened

on October 3, 2011 pursuant to the 2011 Financial Services Law (“FSL”), consolidating the former Banking Department and Insurance Department into one agency.

The first DFS Superintendent is Benjamin M. Lawsky. DFS is comprised of five divisions:

1) Insurance Division; 2) Banking Division; 3) Financial Frauds and Consumer Protection Division (“FFCPD”); 4) Research and Capital Markets; 5) Real Estate Finance.

DFS has newly increased “gap” authority to regulate and enforce rules against previously unregulated providers of financial products and services.

Financial Frauds and Consumer Protection Division (“FFCPD”)FFCPD includes:

A combined Criminal Investigation Unit that includes the Criminal Investigations Bureau of the former Banking Department and the Insurance Frauds Bureau of the former Insurance Department;

A new Civil Investigations Unit of attorneys focusing on major investigations and initiatives;

A disciplinary unit of attorneys focusing on enforcement against insurance producers and licensed insurers for infractions of the Insurance Law.

A Consumer Assistance Unit (“CAU”) that performs consumer education and handles consumer complaints;

A Consumer Examinations Unit that performs consumer compliance, fair lending and Community Reinvestment Act (“CRA”) examinations;

A new Student Protection Unit; and The Holocaust Claims Processing Office.

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DFS’s Online Payday Lending Investigation Payday lending involves short-term, small-value loans that

are typically structured as an advance on a consumer’s next paycheck. Although marketed as being designed for emergencies, payday loans often trap consumers in a cycle of debt.

Most payday lending by non-bank lenders is illegal in New York. These loans violate the state’s civil and criminal usury caps (16% and 25% respectively) by charging interest rates as high as 1,095%. Payday lending is illegal in 15 states and D.C.

Non-bank, out-of-state payday lenders have moved onto the Internet in an attempt to evade state usury laws like New York’s.

In 2010, 35% of all payday lending was done online, and by 2016 that number is expected to rise to 60%.

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DFS’s Online Payday Lending Investigation In early 2013, DFS began an investigation into online

payday lending based on numerous consumer complaints.

In March 2013, DFS sent surveys to approximately twenty state and nationally chartered banks. The goal of the surveys was to understand how payday loans

flow through the Automated Clearing House (“ACH”) electronic payments network.

The Department learned from survey results and subsequent discussions with banks that the ACH network does not currently maintain adequate safeguards to prevent usurious online lending into states with usury laws.

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DFS Demands 35 Online Payday Lenders Cease Illegal Activity in NY In the course of the Department’s investigation, DFS

uncovered evidence that 35 online payday lenders were making illegal payday loans in New York, with interest rates ranging from 116% to 1,095%.

On August 5, 2013, DFS mailed cease-and-desist letters to these 35 payday lenders directing them to stop making and offering payday loans into New York. These lenders included a combination of domestic lenders,

lenders allegedly located outside the U.S., and lenders claiming an affiliation with federally recognized Native American tribes.

The letters directed recipients to “confirm in writing to the Department that [the lenders are] no longer solicit[ing] or mak[ing] usurious loans in New York, and outline the steps taken to cease offering these loans to New York consumers.”

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DFS Seeks Cooperation of Banks, Credit Unions, and NACHA Also on August 5, DFS mailed letters to 117 state

and nationally chartered banks, state credit unions, and NACHA, the private association principally responsible for regulating the ACH network. The letters sought cooperation from financial institutions

and NACHA to stop illegal payday lending into New York to the extent permitted by federal law and NACHA rules.

DFS has met and continues to meet with financial institutions, NACHA, and other key players to develop solutions to the problem of illegal loans flowing through the ACH network.

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Responses from Payday Lenders, NACHA, Operators, and Financial Institutions Since August 5, 22 of the 35 payday lenders have taken steps to

stop offering and making usurious loans in NY. On August 9, NACHA wrote a letter to certain financial

institutions warning them that originating for payday lenders making usurious loans into New York may violate NACHA rules. NACHA demanded that these institutions terminate their relationships with lenders who were violating NACHA rules.

DFS has met with one ACH Operator, the Clearing House (EPN), and plans to meet with the Federal Reserve (FedACH) soon.

Financial institutions, including members of the NY Bankers’ Association, have been meeting with DFS to further the goal of a cooperative solution to address shortcomings in the ACH network.

DFS welcomes additional meetings with CDFIs to further the same goal.

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Other DFS Actions Related to Payday Lending In 2013

In February, DFS issued a letter to debt collectors warning them that any attempt to collect on a void, illegal payday loan is illegal.

In April, DFS fought efforts to create loopholes in New York’s usury laws: DFS opposed Assembly Bill 1113-A (the

“short-term financial services loan act”) that would have allowed licensed check-cashers to offer criminally usurious payday loans.

Due in part to DFS’s opposition, this bill did not pass.

Going Forward: Protecting Consumers’ Accounts and Developing Safe Short-Term Loans

New York has historically been a leader in protecting consumers from predatory short-term, high-interest payday loans.

DFS encourages financial institutions to protect consumers from illegal online lending: Better training of staff around Reg E compliance is key to

helping consumers avoid overdraft fees when exercising their right to stop payment, or revoking their ACH authorizations.

Enhanced due diligence with respect to high-risk originators such as payday lenders.

DFS supports consumers’ access to safe and affordable short-term loans from banks and credit unions.

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Going Forward: Developing Safe Alternatives to Payday Loans Payday lending is harmful and illegal in NY, but consumers

with poor credit histories sometimes need small-dollar loans. DFS is examining how NY consumers can access safe and

legal small-dollar loans rather than payday loans. Alternatives may include:

Encouraging mainstream lenders to provide safe small-dollar loans that comply with NY’s usury caps and have longer-term repayment options (models may include the FDIC’s pilot and the National Federation’s “Borrow and Save” pilot);

Alternative delivery channels such as debit cards; Innovative strategies for encouraging consumers to save and

create “rainy day” funds; We need your input as we explore safe alternatives to payday

loans.

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35 Online Lenders Receiving Cease-and-Desist Letters (*ceased lending in NY)1. *ABJT Funding, LLC d/b/a Dollar Premier2. Advance Me Today 3. American Web Loans 4. *Archer Direct, LLC5. *Bayside Loans 6. *BD PDL Services, LLC d/b/a Bottom Dollar

Payday7. *Blue Sky Finance, LLC d/b/a ExtraFunds

Cash8. BS Financial Group Inc. d/b/a Payday

Accelerated9. *Cash Jar10. *Cash Yes11. *Discount Advances12. *DMA Financial Corp. d/b/a VIP Q-Loot13. *Eastside Lenders, LLC14. *Fast Cash Personal Loans 15. Golden Valley Lending16. *Government Employees Credit Center, Inc.

d/b/a Cash Direct Express17. Great Plains Lending, LLC18. Horizon Opportunities, LLC d/b/a Lifestyle

Services

19. Loan Point USA Online20. MNE Services, Inc. d/b/a AmeriLoan,

UnitedCashLoans, US Fast Cash, 500 Fast Cash

21. MobiLoans, LLC22. *MyCashNow.com, Inc.23. National Opportunities Unlimited, Inc. d/b/a

Itsmypayday.com, TheCashSpot.com24. *Northway Broker Ltd. d/b/a Zip1925. *PayDayMax, Ltd.26. *Peak 3 Holding, LLC d/b/a iCashLoans27. Plain Green, LLC28. Red Rock Tribal Lending, LLC d/b/a

CastlePayday.com29. *SCS Processing d/b/a Everest Cash Advance30. SFS, Inc. d/b/a One Click Cash, Preferred

Cash Loans31. *Sonic Cash32. *Sure Advance, LLC33. *Tribal Credit Line d/b/a Quick Credit 91134. *United Consumer Financial Services, Inc.

d/b/a EZPaydayCash35. *Western Sky Financial, LLC

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We Want to Hear from You DFS is always interested in learning about

financial practices that may be harmful to consumers, particularly issues that are underreported and emerging.

Methods of sharing information with DFS:Consumers and practitioners may file formal

complaints: Practitioners and consumers can contact CAU using our hotline

at (800) 342-3736 Practitioners and consumers should report suspected financial

or insurance fraud to DFS at (800) 342-3736.

Practitioners may request meetings with DFS staff.

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Contact Information Executive Deputy Superintendent Joy

Feigenbaum: (212) 480-6082 Deputy Director, FFCPD Nancy Ruskin: (212) 480-2299 Director, Consumer Examinations and

Community Development, Gwen Robinson: (212) 709-3591

Director, CAU Gille Ann Rabbin: (212) 480-4693