New York, NY- April 30, 2014 - Attorney General Eric T. Schneiderman today announced settlements with four out-of-state companies accused of financing retail installment obligations ("RIOs") at usurious rates of interest, ranging up to 55%, for New York consumers who sought financing for elective medical and surgical procedures. The companies are: MyMedicalloan.com, doing business as Surgeryloan.com, a California corporation; Duvera Billing Services, LLC, a California company; Highlands Premier Acceptance Corporation, a Colorado company, and Paramount Capital Group, Inc., a Pennsylvania company. Under the terms of the settlement, the companies, which were not licensed to finance RIOs in New York, agreed to recast the RIOs to the legal interest rate – no more than 16% -- and will provide approximately $230,000 in repayments or credits to more than 300 New York consumers.
“Sales finance and other loan companies that bypass our state’s licensing and usury laws and target New York consumers will be held accountable,” Attorney General Schneiderman said. “This behavior is particularly egregious when it targets vulnerable consumers seeking medical treatment with high-interest loans.”
An investigation into these companies began after the Attorney General’s Health Care Bureau received a complaint from a consumer about Surgeryloan.com. Surgeryloan.com operated as a broker of RIOs between medical providers and financiers. It provided a web-based application platform that consumers and providers were able to access. The web-based platform requested information regarding the consumer’s employment and credit history, automatically set the annual percentage rate (“APR”) and RIO repayment terms, and submitted the completed application to sales finance companies that were potential financiers of Surgeryloan’s RIO applicants.
The settlement agreements mean that 317 people – most of whom live in New York City, Westchester and on Long Island – will get approximately $230,000 in refunds or credits.
Under New York’s Banking Laws, a company that sells RIOs must be licensed as a sales finance company or lender. While an RIO is similar to a loan in that both involve an agreement to pay back borrowed sums of money, plus interest, over a period of time, they differ in that a loan is typically between a consumer and a bank and a RIO is an arrangement between a purchaser (in these cases, a patient) and seller (here, a medical provider) of a good or service, with the financing company offering the loan service.
Medical providers may recommend financing options, including RIOs, to patients who are unable to pay out of pocket for elective medical surgical services, if insurance does not cover the procedure. Patients typically file online credit applications with a company that acts as a broker, and the company links the application to potential financiers. Once a financier agrees to purchase the RIO, the doctor and the patient both sign a financing agreement that the provider immediately assigns to the financier. The financier, in turn, transfers the funds to the provider. The medical providers who entered into these RIOs agreed to accept less than their usual and customary fees in exchange for upfront payments from the financiers. For example, the provider may have discounted her fee from $10,000 to $8,000. Consumers, on the other hand, would be required to repay to the financier the provider’s $10,000 fee plus interest. And, in today’s cases, many of the RIOs were financed at annual percentage rates (“APRs”) in excess of New York's usury laws; some APRs were as high as 55%.
Under New York’s General Obligations Law §5-501(2) & 5-511(1) and Banking Law §14-a, unlicensed lenders may charge an APR of up to 16%. New York’s Penal Law § 190.40 makes it a crime to charge interest at a rate exceeding 25% APR.
The Attorney General's agreement also requires the companies to: cease all conduct as unlicensed sales finance companies in New York and to notify any consumer reporting agencies to which they gave consumer information to delete all references to the transactions from customers’ credit records. The companies will collectively pay $35,000 in penalties.
This matter was handled by Assistant Attorney General Dorothea Caldwell-Brown of the Health Care Bureau, which is led by Lisa Landau, Bureau Chief of the Health Care Bureau. Alvin Bragg is the Executive Deputy Attorney General for Social Justice.