Mobile Lending Needs More Regulation, Says New York’s Department of Financial Services

Online and mobile lending is a comparatively new phenomenon, so much so that rules surrounding said phenomenon are often either incomplete or straight-up nonexistent. Recently, New York’s Governor Andrew M. Cuomo directed the state’s Department of Financial Services (DFS) to study online lending in New York and bring back recommendations accordingly. Those recommendations recently came out, and the word is surprisingly reasonable.

Essentially, the DFS found that online lenders should be subject to the same rules, regulations, and investigation that any normal bank would face, as noted by DFS superintendent Maria T. Vullo.

That wasn’t all the investigation came out with, of course; it also noted that most who turn to online lending operations aren’t businesses, but rather individuals. In 2017, 235,320 online lending customers were in play, and of them, 226,656 were individuals. The remaining 8,664 were businesses. What’s more, that 235,320 represented a jump of 79 percent over the numbers from 2015.

Yet the report also noted some key issues. Perhaps the biggest of these is that online lenders are often unlicensed in New York, and have no supervisory oversight. The department made its stance on such a lack of regulation clear, saying “All New York lenders should operate under the same set of rules and be subject to consistent enforcement of those rules to achieve a level playing field for all market participants, which is the underlying principle of free markets and competition.”

Sounds reasonable enough, though there’s one big issue in the way there; since we’re talking about online lenders, there’s the issue of jurisdiction to address. If an online lender does business in New York, but is headquartered in Wyoming, should it really have to be licensed in New York? Some of these issues have come up before—Amazon’s sales tax issues have only just been resolved in some places—but they’ll likely continue to come up for some time.

While it makes a good sound bite that all lenders should be on a level playing field, New York’s ability to regulate firms that only tangentially operate in the state is likely somewhat limited. I’m not a lawyer, nor do I play one on TV, but New York might have a tough time of trying to carry out such regulation.