Jessica Silver-Greenberg (New York Times, 2/24) looks at the ties between the big banks and online payday lenders. Some of these institutions have entered the payday lending business in their own right. But, beyond that, the likes of JPMorgan Chase, Bank of America, and Wells Fargo have become, as Silver-Greenberg puts it, a “critical link… enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely” and sometimes allowing “lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.”
For the banks, it can be a lucrative partnership. “many customers are already on shaky financial footing,” Silver-Greenberg explains, payday loan withdrawals “often set off a cascade of fees.”
The Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and authorities in New York and Arkansas, among other states, are said to be investigating the role of major banks in the rise of online payday lending. Senator Jeff Merkley (D-Ore.) has introduced legislation that would require such lenders “to abide by the laws of the state where the borrower lives, rather than where the lender is” while allowing borrowers to cancel automatic withdrawals more easily.