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New York Seeks to Regulate Fintech Lending Market

New York is joining a small but growing list of states seeking to regulate the “bank-origination” method of online lending.

The recently introduced New York Budget legislation would amend Section 340 of the New York Licensed Lender Law to require licensing of entities that market (but do not originate) loans to New York residents if that same entity, in connection with such solicitation, also “purchases or otherwise acquires from others loans or other forms of financing, or arranges or facilitates the funding of loans.”1  Under the current Licensed Lenders Law, only those entities that actually “make” loans are subject to licensing.

The Licensed Lenders Law requires licensing for loans with an interest rate above 16% and in an original amount of $25,000 or less if made for consumer purposes, or $50,000 or less if made for commercial purposes.  Loans made in violation of the Licensed Lender Law are void and unenforceable.2  Thus, for all practicable purposes, the amendment, if passed, would force online marketers using the bank-origination model either to become licensed, or to structure the loans such that the loans are exempt from the Licensed Lender Law (e.g., either by increasing the original principal balance or by reducing the interest rate) if the online marketer solicits into New York.

With the new proposal, New York follows several other states – including Colorado, Vermont, and West Virginia – in seeking to regulate the bank-origination model.  If adopted, the amendment would take effect in January 2018.

The proposed amendment to the Licensed Lenders Law follows on the heels of a scathing criticism of the OCC’s “fintech charter” proposal issued by New York Department of Financial Services Superintendent Maria Vullo.3

1 https://www.budget.ny.gov/pubs/executive/eBudget1718/fy18artVIIbills/TED....


3 http://www.dfs.ny.gov/about/occ_letter1-17-17.pdf.

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About this Author

Jopseph Beach, Cadwalader Law Firm, Investment Banking and Assett Management Attorney

Joseph Beach represents investment banks, asset managers, large commercial banks and commercial paper conduits in a broad range of securitization and structured finance transactions, focusing primarily on CLOs and structured loans.

Joseph's clients include a broad range of investment banks and asset managers in CLO transactions. He has extensive experience with both broadly syndicated and middle market CLOs utilizing cash flow and static pool structures. He also represents multiple commercial banks and asset-backed commercial paper conduits in...

Scott Cammarn Financial Law Attorney Cadwalader Law Firm

Scott Cammarn has 28 years of experience in the banking industry and his legal career has spanned all areas of banking compliance and finance law. His practice focuses on regulatory matters, mergers & acquisitions, legislation, transactions, and training. He represents a number of national and international financial institutions and has practiced before the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and numerous state banking departments.

Prior to joining the firm, he was the Bank Regulatory Counsel for Ally Financial (formerly, GMAC Financial Services) where he advised on bank regulatory issues including transactional, examination, compliance, and legislative matters.

Before joining Ally Financial, Scott was the Senior Vice President and General Counsel of LendingTree and served as the Corporate Secretary. At LendingTree, he was responsible for all legal and compliance matters. Prior to joining LendingTree, he served in various legal capacities over his 11 years at Bank of America, including Associate General Counsel, bank regulatory, global marketing and global corporate affairs.

Scott has been selected to The Best Lawyers in America as one of the nation's leading lawyers in Banking and Finance Law as well as in Financial Services Regulation Law. He was also named Lawyer of the Year three times by The Best Lawyers in America, for Banking and Finance Law and for Financial Services Regulation Law.  Additionally, Scott has been consistently recognized as a leading lawyer on the national level in Financial Services Regulation by Chambers USA and named a Rising Star for Financial Services Regulatory by IFLR1000 for the last two years. Scott has also been an adjunct professor at Duke University School of Law, teaching the U.S. Banking Regulation course.  Currently, he is a member of the ABA Business Law Section/Banking Law Committee, a board member of the UNC Banking Law Institute, a Practitioner-in-Residence at UNC School of Law and a board member of Duke’s Global Financial Markets Center. He is a frequent speaker on bank regulatory matters and has provided corporate executive training.