New York Top Financial Regulator Brings Challenge To Partnership Model Of Fintech And Banks

The top financial regulator in New York is bringing a challenge to the fundamental principle of bank-fintech partnership in an attempt to reduce the rate of lenders who avoid state interest rate caps.  The New York Financial Regulator ordered all lenders to comply with state usury limits in a report on the 11th of July.  According to the State Regulator, it does not agree with the opinion that a national bank who partners with a lender online is the “true lender”, Or the party who is in charge of making the loan or whose charter spells out the usury limit. However, National Banks are not included in state usury caps.

Why The Financial Regulator Is Challenging  The Partnership Model

The fintech-bank partnership principle is a huge deviation from the partnership model of the national bank, many online lenders take advantage of this to avoid low state interest rate caps. According to the DFS, “ the department is very concerned  with the attempts made to boycott it’s regulations and the New York payday lending ban”. Adding that “short term small dollar loans with high interests are not legal in New York “.

Steps The Agency Is Taking To Implement This Challenge

On the steps being taken by the agency to implement it’s order for all lenders in New York to be subject to state interest rate caps,  it was not clearly detailed by the agency. However, speaking to Bloomberg Law via email, the DFS spokesperson, Ronald Klug said,  “ the report speaks for itself”.

Multiple sources are speculating that the agency has an intention to investigate some bank- online lender partnerships. Lauren Saunders, an associate director with the National Consumer Law Center said while speaking on this issue that she suspects the agency is closely investigating bank partnerships, especially those that attempts to cover up usurious lending, using banks as a “fig leaf”.

Concerns With The Agency’s Policy

A few people have raised concerns about the policy, questioning it’s intent.  Like Catherine M.  Brennan, a partner in Hudson Cook’s  , Md., office who opines that the report is trying to conflate online lenders to be the true lenders even in some cases where it might be inappropriate regarding the report as a “political document”. According to Brennan, “DFS should take actions directly against specific partnerships if it feels they are sham partnerships instead of impugning on an entire industry”.


It is high time DFS as an agency exerted  some regulatory measures on online loans especially considering it’s massive growth in recent times. However, in doing this, it should be careful not to impugn on an entire industry just like a lot of citizens like Brennan is concerned about.