Major Banks Quietly Provide Support for Online Payday ... - Bankruptcy

By John Clark

While payday lenders are often viewed as rogue operations working outside mainstream finance, they?re apparently being aided by major banks, according to an investigative report from The New York Times.

Sources say major banks, including JPMorgan Chase, Bank of America, and Wells Fargo, serve as an important link between payday lenders, which have been banned in 15 states, and their customers.

But banks have kept their involvement with payday lenders very quiet, as they lenders often charge interest rates as high as 500 percent for short-term loans, a practice that has forced many consumers to seek debt relief through personal bankruptcy.

Big Banks Work in Tandem with Payday Lenders

According to reports, payday lenders often fail to gather unpaid debts from customers who live in states where the lenders are banned, or who simply ignore their demands.

To address this problem, payday lenders have started to team up with major banks, which allow the lenders to withdraw funds from their customers? bank accounts. Shockingly, the practice also occurs in states where payday lending has been outlawed.

According to Josh Zinner, the director of an economic development program in New York, payday lenders ?simply couldn?t operate? without the help of banks in ?processing and sending electronic funds.?

As more and more payday lenders move their operations overseas to avoid state-mandated caps on interest rates, they increasingly rely on the services of major banks to keep the cash flowing, sources say.

Some banks have even gone so far as to allow access to checking account after consumers have specifically asked them to stop allowing the withdrawals.

And the benefits to banks are potentially enormous. Sources say about 27 percent of people who borrow payday loans eventually draw more money from their accounts than they have, which reportedly generates billions of dollars in extra fees for major banks.

Banking Industry Defends Alliance with Payday Lenders

In their defense, banks claim that it?s impossible to monitor the destination of every transaction that occurs through a massive financial institution.

Virginia O?Neill, an attorney with the American Bankers Association, notes that banks are ?not in a position to monitor customer accounts to see where their payments are going.?

Of course, these words provide little solace to the victims of payday lending, which have helped contribute to a significant rise in consumer debt over the past decade. And the banks likely won?t stop the practice until they receive serious pressure from Congress, sources say.

Source: http://www.clearbankruptcy.com/blog/major-banks-quietly-provide-support-for-online-payday-lenders/

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