The Senate Tuesday approved a bill that would fundamentally change the nature of loans and lending by redefining what constitutes a "high-cost" loan in New York State. The bill, which The Council opposed, would also give trial lawyers a victory by encouraging lawsuits stemming from disputes over loans.

The Assembly passed the same bill last week.

However, in passing the Assembly bill (A.11856), the Senate also passed S.7840, a chapter amendment to the bill that would provide for less draconian damages for violations of the new law and other moderations of the original Assembly bill. It is unclear if the Assembly will pass this chapter amendment.

Loans are generally classified in three categories: prime (offered to borrowers with the best credit rating), sub-prime, and high-cost. New York State banking regulations specify the interest rate at which a loan is considered high-cost; the other two designations are based on lending practices. High-cost loans come with higher risk for the lender and higher costs for the borrower.

The Council objects to the bill because it would significantly lower the interest-rate threshold at which loans would be classified as high-cost. As a result, thousands of loans a year that would be classified as sub-prime would be pushed into the high-cost category.

It also creates new private causes of actions - i.e., opportunities for lawsuits - and severe new penalties for violations.

Current banking regulations offer a better balance of free-market principles and consumer protection, The Council argued.