On April 30, New York Attorney General (AG) Eric Schneiderman announced that four out-of-state companies alleged to have financed retail installment obligations (RIOs) at rates in excess of the state’s usury cap agreed to recast the RIOs at a rate of not more than 16% and provide repayment or credits to impacted New York consumers. The settlements are the latest in a series of actions in New York targeting out-of-state or online lenders and finance companies that make loans in New York without obtaining a license to operate in that state.
The companies financed elective medical and surgical procedures through RIOs offered by medical providers to patients, an activity the AG believes required the companies to obtain a state license to operate as sales finance companies or lenders. The AG’s Health Care Bureau initiated the investigation after it received complaints about an online lead generation site. As described in the AG’s release, that lead generator requested information regarding a consumer’s employment and credit history, automatically set the APR and RIO repayment terms, and submitted the completed application to sales finance companies. The AG explains that once a finance company agreed to purchase the RIO, the medical provider and the patient both signed a financing agreement that the medical provider immediately assigned to the finance company. The finance company then transferred the funds to the medical provider who agreed to accept less than their usual and customary fees in exchange for upfront payments from the finance company. The patient, however, would be required to repay to the financier full fees plus interest, which in this case allegedly exceeded the statutory usury cap, up to 55% in some instances. State law restricts unlicensed lenders to charging an APR of up to 16%, and establishes criminal penalties for unlicensed lenders that charge interest at a rate exceeding 25% APR.
In addition to revising existing loans and providing approximately $230,000 in remediation to 317 consumers, the agreements require the companies to (i) collectively pay $35,000 in penalties; (ii) cease all conduct as unlicensed sales finance companies in New York; and (iii) notify any consumer reporting agencies to which they gave consumer information to delete all references to the transactions from customers’ credit records. The agreements do not include any criminal penalties.
In addition to extending the state’s licensing enforcement focus, this is at least the second financial services case initiated in recent months by the AG’s Health Care Bureau. In June 2013, the AG announced a settlement with a credit card issuer related to alleged illegal deferred interest products offered through medical provider offices.