New York is leading a multistate investigation into the country’s payroll advance industry over allegations of unlawful online lending, state Department of Financial Services Superintendent Linda Lacewell said Tuesday.

Those companies claim to allow employees to cash out their future earnings before they’re paid, but often include charges that could violate the state’s banking laws, Lacewell said.

“High-cost payroll loans are scrutinized closely in New York, and this investigation will help determine whether these payroll advance practices are usurious and harming consumers,” Lacewell said.

Payroll advance firms are alleged by the agency to have collected usurious or otherwise unlawful interest rates disguised as “tips,” monthly membership for the service, or other fees. Those practices could lead, at times, to overdraft charges for low-income consumers, DFS said.

The investigation comes as DFS continues to increase its efforts in regulating the intersection between financial services and the digital economy. Online lending, for example, has become a focus of the agency in recent years.

The state’s investigation will examine whether the payroll advance industry has gone beyond the state’s usury limits, licensing laws and other applicable laws regulating payday lending and consumer protection. Payday loans are illegal in New York.

“We will use all the tools at our disposal, including partnering with peer regulators to safeguard consumers from predatory lending and scams that ensnare families in endless cycles of debt,” Lacewell said.

Any violations identified by the agency could end in an enforcement action from the agency against payroll advance firms, or possibly multistate litigation brought by the New York Attorney General’s Office.

Financial regulatory agencies from Connecticut, Illinois, Maryland, New Jersey, North Carolina, North Dakota, Oklahoma, Puerto Rico, South Carolina, South Dakota and Texas are involved in the investigation with DFS.

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