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Apply New York usurious law to all loans granted to New Yorkers. All enterprises participating in on-line loan granting must obtain a licence from DFS. Information from 35 enterprises that participated in an DFS on-line loan questionnaire in early 2018 is included in the scope of the DFS Annual Review.
New York Governor Andrew Cuomo on 1 June 2018 passed a law obliging DFS to investigate on-line loans in New York State and to present a published account of its results and advice. DFS was obliged to analyse the on-line lenders in New York, taking into account the functioning, credit granting practice, interest and charges levied, risk and benefit of the credit product on offer, difference from conventional credit providers, and complaint and investigation regarding on-line lenders.
What is DFS's description of the " on-line lenders " in its annual DFS survey? The DFS does not present a concrete concept of "online lender". "Rather, DFS states in its annual reports that "online lending", "marketplace lending" and "alternative lending" essentially relate to credit-related activity that is predominantly or exclusively carried out on-line and uses invested funds, automated processes, analytical tools and technology-based approaches to underwrite directly or indirectly predominantly uncollateralised credit to consumers and small enterprises.
Among other things, the poll required each firm to provide information on the number and size of New York residents' credit, the APR charged to each borrower, and the credit scheme used for granting the loan. Credit volume: Of the 35 firms that participated in the poll, 352,171 New York citizens received credit, of which 319,544 were individual and 32,627 were corporate.
Loans to individual persons represented $2. 48 billion dollars worth, and Loans to firms represented $500 million, for a combined value of $2. 98 billion. DFS estimates that this corresponds to a small part of the 51 billion dollars that New York borrower cooperatives, New York borrower's cooperatives and other lenders licenced by DFS granted to nonmortgage lenders in 2017.
8 per cent for credit to consumers, 22. 2 per cent for non-consumer credits to individual persons and 25 per cent for nonconsumer credits to persons. 9 percent for corporate lending. 3 per cent for non-consumer credit to households and 61 per cent for non-consumer credit to households. 8 percent for companies. Buisness models: Smaller numbers of respondents answered Q&A sessions on DFS's core businesses. On the basis of the replies given, however, far more credit was granted'in cooperation or partnerships with other banks' than the amount'alone' paid by the interviewee.
Presumably, this means that fewer credits were granted by lenders directly than the number granted through some kind of banking partners originality scheme. Besides the answers to the questionnaire, the company also received statements from other interest groups in the sector, among them consumers' associations, financial institutions, cooperative banking societies and others. How does German Financial Supervisory Authority (DFS) assess the agreements on the establishment of banking institutions in the field of on-line banking?
In a special section of the DFS Annual Review, DFS deals with agreements between non-bank service providers that cooperate with a custodian to grant credit to consumers or trade. The DFS contradicts the arguments that the credits are granted by the banking partners, the credits are exempted from the New York usurious law and the licence requirement is waived for the DVB Group.
It is DFS's explicit view that the non-bank platforms are the "true lenders", especially where they are: Market and advertising for the credits; Handles credit requests; Is the borrower-oriented unit; Buys the credits from the credit institution; Sells whole credits or securitised credit product to investor. DFS is of the opinion that credit to small enterprises should be governed by the same New York legislation that applies to credit to consumers.
The DFS has quoted the 2016 U.S. Treasury Department Survey on Market Place Financing, according to which small businesses' credits "below US$100,000" shared features with consumers' credits. The DFS does not, however, specifically identify a "small enterprise" and does not make clear whether its recommendations apply to all commodity credits on the basis of the amount of credits or only to commodity credits granted to single (non-unit) borrowers. However, the DFS does not specifically identify a "small enterprise" as such.
With regard to the DFS recommendations on customer protections for small businesses, the DFS reports include transparent prices, equitable granting of credits, equitable collecting methods and privacy. The DFS advises that the New York usurious right applies to all New York resident mortgages, regardless of the nature of the mortgages or the nature of the lenders.
With regard to on-line loan extension, this view seems to originate from DFS's conviction that the "true lender" in a banking partnership agreement is the non-bank unit. Since DFS considers that a non-bank unit is the creditor, DFS is of the opinion that the credits should not take precedence over state usurious legislation, which would normally be available for granting credits to banks.
The New York Act generally forbids non-licensed lenders to grant credit with interest above 16% per annum and forbids an interest above 25% for any kind of credit. Assuming that all credit to New York citizens is restricted, some businesses that participated in the New York poll would have to lower their interest charges.
Currently, a New York Lender License is needed to grant $25,000 or less in credit to consumers, or $50,000 or less in credit to businesses if the credit is interest bearing at more than 16% per annum. The DFS is worried that many enterprises active in the field of on-line credit are not licensed in New York and are not directly supervised for reasons of security and creditworthiness or from the point of view of consumers.
DFS considers that many of these enterprises should be licensed, partly because of DFS's view that non-banks working with banking are the "true lenders". The DFS seems to be interested in extending the application range of the lender licence and has again issued a proposal to lower the licence level from 16% to 7% per year.
Those suggestions are broadly in line with the previously suggested changes to the Licensed Lender Act that were incorporated into the New York Governor's draft 2017 fiscal year. They would have deleted the clause restricting the licence to cover interest rate over 16% per annum, clarifying the licence's applicability to industrial lending and extending the range of authorised operations from the simple'granting' of a loan to the purchase, acquisition, brokerage or facilitation of such a loan.