Lender license requirements recently included in the New York governor’s proposed 2017-2018 budget would expand the jurisdiction of the New York State Department of Financial Services (NYDFS) to cover many financial technology (FinTech) credit-lending companies that are currently exempt from license requirements. The proposed budget would prohibit businesses that are not registered as licensed lenders from making personal loans with a principal of $25,000 or less, and commercial loans of $50,000 or less, regardless of interest rate. Current New York state banking law only requires a license if the charged interest rate is above 16 percent. The budget would additionally apply the licensing requirement not only to any company that solicits and “makes, purchases or acquires” loans for New York residents, but also to any that “arranges or facilitates” the origination of such loans.
NYDFS’ expanded lender licensing authority would apply to marketplace lenders–online platforms that facilitate small-scale loans by matching credit lenders with consumers–as well as to merchant cash advance companies, big data credit startups, and any other companies that provide or facilitate smaller-scale loans online or offline. The proposed budget provides that the NYDFS superintendent may allow an exemption from the licensing requirement “when necessary to facilitate low cost lending in any community.” However, neither the proposed budget nor NYDFS has offered further guidance as to how the exemption would be applied.
NYDFS currently imposes significant registration requirements on licensed lenders. Among other hurdles, businesses must file and maintain compliance documentation, implement internal controls, and undergo background checks, examinations, and annual assessments. Businesses seeking licensed lender status are not permitted to make loans while registration is pending.
New York’s proposed expansion of the lender license requirement continues an ongoing dispute between federal and state authorities over the regulation of FinTech companies. In December, the Office of the Comptroller of the Currency (OCC) announced it would consider granting FinTech companies special-purpose national bank charters that would treat them similarly to national banks from a regulatory perspective, and generally preempt state laws. The OCC’s proposal would enable non-bank FinTech companies to seek a single banking license from a single national regulator, as opposed to numerous licenses across multiple states. In response, NYDFS Superintendent Maria Vullo submitted a letter opposing the OCC’s proposal, and claiming FinTech activities would be better regulated by the states. The proposed expansion of NYDFS’ lender license requirements appears to follow Superintendent Vullo’s views.
FinTech companies and marketplace lenders in particular should be cognizant of these and other continuing efforts to regulate FinTech, and should prepare accordingly. Steps that FinTech companies can take now to prepare for future regulation include engaging directly with potential regulators; conducting self-assessments of compliance with existing lending and finance laws, such as the Gramm-Leach-Bliley Act; assessing the retention of company data and records; and crafting and implementing internal compliance policies and controls.