Payday Loan Times

Eliot Spitzer, the New York State Attorney General, and front-runner in this November's race for governor, said the state's banking and insurance regulators aren't doing enough to protect New York residents from abusive practices, especially those with lower incomes.

The Democratic candidate told The Buffalo News that the two state agencies already have significant authority to go after violators of state law, but haven't been forceful enough in asserting it.

Instead, it has taken the investigations of his own office to prod others into action, the native New Yorker said.

"The Banking Department and the Insurance Department can do more than they have been. The agencies have not been digging as aggressively as they should have been to protect consumers. I would like to see state agencies be more aggressive in those domains," Spitzer said.

Republican candidate and former Assembly Minority Leader John J. Faso said that authorities must enforce the law, but the real solution to Buffalo's rising consumer debt problems is an improved economy, not more government.

Their comments came in response to last week's News series "The High Cost of Being Poor," which revealed several ways — some of them illegal — in which the poor end up paying more for goods and services.

Where laws and authority aren't strong enough to curb such practices, such as the state's 20-year-old law governing the rent-to-own industry, Spitzer called for strengthening them to ensure protection."You look at what people end up paying to get clear title to a home or anything else, and you look at the underlying value, and they've been taken to the cleaners. It is horrific, and it is very hard to justify. These are areas where consumer protections need to be beefed up," Spitzer said.Insurance Superintendent Howard Mills said he was surprised at Spitzer's remarks, noting that insurance regulators had worked with the Attorney General's office on a number of investigations. He cited more than $400 million in auto insurance premium cuts, a new 15 percent cut in title insurance premiums, and efforts to ensure the prompt payment of health insurance claim.

"I don't think the Pataki administration has anything but pride in its pro-consumer accomplishments," Mills said, referring to outgoing three-term governor George Pataki.

Similarly, Banking Superintendent Diana L. Taylor cited her department's history of working with Spitzer, its financial literacy and fair-lending efforts, and its lead role in recent multi-state settlements that brought consumers restitution.

Faso said he believes it is incumbent on the authorities to take action against violations of state law, such as illegal and high-priced check-cashing fees (similar to those assessed on payday loans) charged by corner grocers.

"There are always going to be people who violate the law, who seek to take advantage of others. That doesn't mean we should tolerate it," he said, but noted that new laws and better enforcement will not be enough to solve the problem.

"Mere passage of laws doesn't necessarily mean that people will follow them. The underlying solution to the problem is an improved economy in Buffalo. It is not more government," Faso urged.

The News series detailed the high fees low-income consumers without cash or credit must pay to cash checks, buy furniture or appliances, receive a cash advance against their taxes, or borrow to purchase cars and houses. On top of that, the newspaper revealed that many corner stores were illegally cashing checks without a license and charging well over the state maximum.

Predatory lending is also a huge problem in New York State, despite efforts to quell it. Assembly leaders called for hearings this summer in Buffalo to examine such issues and determine what changes are needed.

Spitzer's crusades against deception in the investment banking, mutual fund and insurance industries have earned him a national reputation. He touted his past efforts to tackle abuses and pointed to suits against payday loan providers lenders and efforts against deceptive credit card practices that resulted in millions of dollars in fines and restitution.

Some of the practices were aimed at borrowers with bad credit.

"These people need protection. That is where people are most vulnerable and where loss of cash flow is most damaging," Spitzer said.

But his scope has limits, and other regulators have not been as active in using their own jurisdiction, he said, adding that the Banking Department must be given clearer authority to go after illegal check-cashing on its own, without having to rely on local, overburdened district attorneys.