The Truth About Predatory Lending in New York

Industry Claim: “We provide essential financial services to underserved communities.”

Community Response: There’s nothing “essential” about financial products that trap people in debt and drain wealth from those who can least afford it. The very schemes that ELSA seeks to regulate—payday loan apps, rent-to-own contracts, and other high-cost financial products—routinely lead to overdraft fees, repeat borrowing, and deeper financial distress than borrowers faced to begin with.

New York already allows interest rates up to 25% APR, which is hardly a barrier for responsible lending. Companies charging far beyond that are not meeting a need—they’re exploiting communities. For example, since 2019, payday loan apps alone have siphoned more than $500 million from low-income New Yorkers under the guise of access and convenience. Rent-to-own companies follow a similar playbook, charging customers as much as 2.25 times the cost of a product. Many of these items are poorly made, designed to fail, and expected to be repossessed—making default part of the business model.

These predatory financing arrangements target the very communities they claim to serve. True access means fair, affordable credit—not schemes that depend on financial desperation to turn a profit. ELSA would bring long-overdue accountability to a marketplace built on extraction, not service.

Industry Claim: “Without us, low-income communities and small businesses would have no access to credit.”

Community Response: This is a false, and deeply cynical, choice. It assumes that the only way to extend financial services to low-income communities and communities of color is through extraction and exploitation.

In reality, New York has a robust network of community lenders, like Community Development Financial Institutions (CDFIs), that provide fair, affordable loans and financial products to low-income communities and small businesses every day. Rather than opening the floodgates to toxic credit products that leave people and communities worse off, New York should embrace the real solutions that communities have put forward to address our unequal financial system.

Predatory lending thrives when people don’t earn enough to get from paycheck to paycheck. It also floods the void left by banks that continue to redline and abandon entire neighborhoods. Rather than accept a substandard financial system for low-income people and communities of color, New York must establish a living wage, invest in public banks, and strengthen CDFIs, which are already responsibly serving these communities. We urge the Legislature to partner with communities to make these solutions real.

Industry Claim: “Our products are not loans” / “Our products don’t carry interest.” / “Our products are non-recourse–we can’t sue to collect debt.” / “APR is not an appropriate measurement for our products.”

Community Response: This is pure spin. If a company gives you money and expects a repayment with fees, that’s a loan. So-called Earned Wage Advance (EWA) companies take this argument to its most absurd conclusion, rebranding payday loans as early access to wages.

Payday loan app companies don’t need to bring debt collection suits because they have direct access to borrowers’ bank accounts and wages—in fact, these companies are highly successful 97% to 99% of the time in securing repayment, and they collect regardless of whether borrowers can afford to repay without further loans or without overdrafting. Center for Responsible Lending research has found that after consumers started using cash advance apps, overdraft fees increased by an average of 67%, and that 75% of borrowers take out at least one advance on the same day or day after making a repayment.

Because EWA products are loans that carry interest, they must be subject to state and national usury laws. Because these products are loans, it is appropriate to measure the interest rate using Annual Percentage Rate. The industry claims this basic, universal standard of measurement should not apply to their products because they’re small dollar “advances”; however, all loans are measured with APR, just like a driver’s speed is measured in miles per hour, regardless of how far they drive.

Industry Claim: “We’re not the problem—other lenders are worse.” / “We have to charge high rates because of risk.” / “If we’re subject to New York’s usury cap, we’ll have to leave the state.”

Community Response: If a lender can survive only by charging usurious rates, relying on high default risk, or disguising interest as fees and “tips,” it has a business-model problem, not a regulation problem. New York law already allows for interest rates up to 25% APR. That’s more than enough for any responsible lender.

Let’s be clear: Good actors follow the law. They offer transparent, affordable products, and operate in partnership with communities—not at their expense. Companies that can’t function without exploiting legal loopholes and draining wealth from low-income New Yorkers aren’t “serving” anyone. They’re extracting, and New York must ensure that these business models have no place in our state.

Instead of enabling exploitative lending models, New York should level the playing field among all lenders by consistently enforcing our usury laws, strengthening community-based financial institutions, and expanding access to safe, sustainable credit for all.

Industry Claim: “Rent-to-own is already regulated under Article 11. Further regulation is unnecessary and confusing.”

Community Response: Article 11 is an outdated and ineffective regulatory regime that enables, rather than prevents, predatory rent-to-own practices. Under Article 11, rent-to-own businesses may charge more than twice what they paid for certain goods, then lease those overpriced goods for up to 2.25 times the listed price. To illustrate, a rent-to-own company could buy a couch for $1,000 but then lease it for up to $4,837.50.

Around 75% of rent-to-own users earn under $36,000 per year; and research shows that in New York City, for example, rent-to-own storefronts appear disproportionately in neighborhoods with a population that is more than 70% Black or Latino. This targeting results in blatant wealth extraction from low-income people and communities of color.

The harm isn’t hypothetical. A Genesee Co-op Federal Credit Union member in Rochester was charged $3,200 for a washing machine that could have cost $600—or just $660 if financed through a local credit union. In another example, from New Economy Project’s NYC Financial Justice Hotline, a rent-to-own company sought over $7,000 from a Latina single mom for furniture it had listed at a $3,500 cash price.

And rent-to-own has changed. Many of the biggest players have moved into the virtual space. Unlike the traditional rent-to-own merchants the legislature likely had in mind when it passed Article 11 in the 1980s, these companies now rely heavily on online operations, avoiding much of the overhead associated with physical inventory and retail space. These virtual companies also benefit from little oversight and accountability to their customers, as demonstrated in Attorney General James’ lawsuit against Acima—a fintech company owned by Upbound Group, formerly known as Rent-a-Center, Inc.—for repeated and persistent deceptive practices.

ELSA provides clarity, not confusion, by subjecting all lenders, including rent-to-own companies, to the same rules and protections.