New York Legislature Held A Hearing On Online Lending

Update: The full video of the 6-hour Monday hearing is below:

Update:

The six-hour marathon hearing mainly focused on non-bank fintech companies and their bank partnerships to make loans. Lending Club, for example, was criticized for marketing their business as a “marketplace” when in actuality their loans are issued to consumers by WebBank. Assembly Member Brian Kavanagh had Lending Club representative Richard Neiman explain bit by bit how their model actually works, and inquired why the company felt it was necessary to partner with a bank in Utah rather than just become a licensed lender in the State of New York. Some of the questions, like that one, were pretty good, but others came across as misguided.

Arlen Gelbard, the EVP and General Counsel for Cross River Bank for example, was harangued for supposedly flouting New York laws. Senator Diane Savino asked Gelbard why his company didn’t have a lending license in New York. Gelbard, confused by the question, explained that his company was already a fully regulated state chartered bank and although the bank is based in New Jersey, there is no law that says they have to move to New York or become licensed to lend there.

NY Department of Financial Services Superintendent Maria Vullo made the strangest leap however by suggesting that the State’s civil usury cap be reduced from 16% to 7%. She based that idea on the presumption that a low Fed Funds rate meant that lenders must be making excess interest on the loans they make. She seemed to be unaware that interest rates on loans incorporated default risk, rather than simply than a lender’s cost of capital alone.

According to the official notice, the “hearing seeks to explore the current state of online lending, the impact of online lending on consumers and small businesses in New York State, predatory online lending practices which need to be mitigated, and potential regulatory or legislative action which may be needed to address predatory online lending practices.”