The New York State Department of Financial Services is hoping to expand its authority to marketplace lenders, brokers, merchant cash advance companies and others that previously could operate in the state without a license with changes included in Gov. Cuomo’s proposed budget for 2017.

The measure, if passed, would expand licensing requirements to all companies that make personal loans of $25,000 or less or commercial loans of $50,000 or less, regardless of the interest rate charged. Previously, the state required companies in that category to obtain a license only if they charged more than 16% interest.

It also would expand coverage to companies that are involved in the loan process, whether or not they are directly making the loan. This would include marketplace lenders – the platforms that connect lenders and borrowers – as well as merchant cash advance companies and any firm that trades loans. Online lenders that partner with out-of-state banks would also be covered, but the banks themselves would not have to get a license.

It would have a significant impact on the Fintech industry in New York, according to observers.

"It typically takes a year or more to grant licenses," said Scott M. Pearson, a partner at Ballard Spahr. "Anybody who decides to go through that process would have to stop their lending activities for a while until they get their license."

And beyond that, the process of being supervised by the New York regulator might be beyond these Fintech companies' capacities.

"You're going to be subject to supervision by the New York Department of Financial Services, and that adds a whole new layer of costs and burdens to doing business in the state," Pearson said.


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