New York State's crackdown on online lenders has ensnared a Chicago company that makes loans backed by a borrower's car.

State Attorney General Eric Schneiderman fined the auto-title lender Manor Resources more than $33,000 Monday for violating the New York's interest-rate cap. Schneiderman also ordered the lender to forgive the balance of all its New York loans, a sum estimated at $28,000, according to a spokeswoman for the attorney general's office.

In addition, Schneiderman announced that loan agreements in New York cannot include mandatory arbitration clauses, which stipulate that all disputes between borrower and lender must be handled through arbitration rather than the courts. Manor Resources' loan contracts included such clauses, the state said.

Manor Resources allegedly charged borrowers 10% a month for short-term loans secured by a right to own a borrower's car in case of default. New York law sets the maximum annual rate for a loan of $25,000 or less at 25% for companies licensed by the state's Department of Financial Services (DFS), and 16% for all others.

"New York is not open for business to predatory online lenders, and Manor is just the latest company to learn that lesson," Schneiderman said in a news release.

Recent efforts by Schneiderman, as well as Department of Financial Services Superintendent Benjamin Lawsky, have made New York among the states most aggressively pursuing online small-dollar lenders.

In August, Schneiderman's office sued a group of online lender affiliated with Native American tribes for violating state usury caps. A federal later ruled that the lenders' tribal connections do not shield them from regulation by the state.

In September, Schneiderman's office fined a group of companies that collected on illegal payday loans.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.