It was reported recently that major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent. With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or in locales far away such as Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.
While the banks, which include giants such as JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they have become a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have asked them to stop the withdrawals. It was pointed out that “without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate.”
Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis. It was reported that the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans.
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