Regulators in New York plan to crack down on high-interest loans made to military service members by closing a loophole that had allowed companies to make unlicensed loans that in some cases were more than twice the states interest rate cap.
New York Gov. Andrew M. Cuomo announced Monday the plan for stricter enforcement. The Fort Drum Loophole is predicated on a previous 2005 determination by the New York State Banking Department that allowed for more than double the interest rate cap to service members who were stationed in New York but not permanent residents of the state. Cuomo announced Monday his office is reversing that determination effective immediately.
Jacking up the interest rates on loans made to military service members to make a greater profit is simply unacceptable and it will not be tolerated in the state of New York, he said. "This action will help protect military servicemembers and their families from predatory lending, and companies should know that we will not hesitate to crack down on bad actors.
Cuomo announced his plan to close the Fort Drum Loophole as part of his 2015 Opportunity Agenda.
Omni Military Lending, after discussions with the New York State Department of Financial Services (DFS), recently agreed that all loans to service members stationed in New York now will be made through an entity licensed by DFS, Omni Financial of New York Inc., in order to comply with New Yorks usury and licensed lender laws.
Omni had been making loans in New York at interest rates of up to 36%, despite a New York State interest rate cap of 16% on such loans or 25% interest for certain licensed lenders.
The DFS sent a letter to Omni on Monday acknowledging the company's agreement and providing guidance to all military lenders that loans made to servicemembers stationed in New York should be made in compliance with New Yorks interest rate caps, thereby closing the Fort Drum loophole.
A copy of the DFS letter sent closing the Fort Drum loophole can be viewed here.