[Vision2020] A Confederacy Of Whores

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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February 23, 2013
Major Banks Aid in Payday Loans Banned by States By JESSICA
SILVER-GREENBERG<http://topics.nytimes.com/top/reference/timestopics/people/s/jessica_silvergreenberg/index.html>

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 far-flung locales
like Belize, Malta and the West Indies to more easily evade statewide caps
on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America
and Wells Fargo, do not make the loans, they are 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 begged them to stop the withdrawals.

“Without the assistance of the banks in processing and sending electronic
funds, these lenders simply couldn’t operate,” said Josh Zinner,
co-director of the Neighborhood Economic Development Advocacy
Project<http://www.nedap.org/index.html>,
which works with community groups in New York.

The banking industry says it is simply serving customers who have
authorized the lenders to withdraw money from their accounts. “The industry
is not in a position to monitor customer accounts to see where their
payments are going,” said Virginia O’Neill, senior counsel with the
American Bankers Association.

But state and federal officials are taking aim at the banks’ role at a time
when authorities are increasing their efforts to clamp down on payday
lending and its practice of providing quick money to borrowers who need
cash.

The Federal Deposit Insurance Corporation and the Consumer Financial
Protection Bureau are examining banks’ roles in the online loans, according
to several people with direct knowledge of the matter. Benjamin M. Lawsky,
who heads New York State’s Department of Financial Services, is
investigating how banks enable the online lenders to skirt New York law and
make loans to residents of the state, where interest rates are capped at 25
percent.

For the banks, it can be a lucrative partnership. At first blush,
processing automatic withdrawals hardly seems like a source of profit. But
many customers are already on shaky financial footing. The withdrawals
often set off a cascade of fees from problems like overdrafts. Roughly 27
percent<http://www.pewstates.org/research/reports/how-borrowers-choose-and-repay-payday-loans-85899452131>of
payday loan borrowers say that the loans caused them to overdraw their
accounts, according to a report released this month by the Pew Charitable
Trusts. That fee income is coveted, given that financial
regulations<http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/financial_regulatory_reform/index.html?inline=nyt-classifier>limiting
fees on debit and credit cards have cost banks billions of
dollars.

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<http://topics.nytimes.com/your-money/loans/mortgages/index.html?inline=nyt-classifier>lending
helped precipitate the 2008 financial crisis.

Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a
bill in July aimed at reining in the lenders, in part, by forcing them to
abide by the laws of the state where the borrower lives, rather than where
the lender is. The legislation, pending in Congress, would also allow
borrowers to cancel automatic withdrawals more easily. “Technology has
taken a lot of these scams online, and it’s time to crack down,” Mr.
Merkley said in a
statement<http://www.tomudall.senate.gov/?p=press_release&id=1195>when
the bill was introduced.

While the loans are simple to obtain — some online lenders promise approval
in minutes with no credit check — they are tough to get rid of. Customers
who want to repay their loan in full typically must contact the online
lender at least three days before the next withdrawal. Otherwise, the
lender automatically renews the loans at least monthly and withdraws only
the interest owed. Under federal law, customers are allowed to stop
authorized withdrawals from their account. Still, some borrowers say their
banks do not heed requests to stop the loans.

Ivy Brodsky, 37, thought she had figured out a way to stop six payday
lenders from taking money from her account when she visited her Chase
branch in Brighton Beach in Brooklyn in March to close it. But Chase kept
the account open and between April and May, the six Internet lenders tried
to withdraw money from Ms. Brodsky’s account 55 times, according to bank
records reviewed by The New York Times. Chase charged her $1,523 in fees —
a combination of 44 insufficient fund fees, extended overdraft fees and
service fees.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the
overdraft fees levied by Chase cannibalized her child support income. She
said she applied for a $400 loan from Loanshoponline.com and a $700 loan
from Advancemetoday.com in 2011. The loans, with annual interest rates of
730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in
October 2011, but was told that she had to ask the lenders instead. In one
month, her bank records show, the lenders tried to take money from her
account at least six times. Chase charged her $812 in fees and deducted
over $600 from her child-support payments to cover them.

“I don’t understand why my own bank just wouldn’t listen to me,” Ms.
Baptiste said, adding that Chase ultimately closed her account last
January, three months after she asked.

A spokeswoman for Bank of America said the bank always honored requests to
stop automatic withdrawals. Wells Fargo declined to comment. Kristin
Lemkau, a spokeswoman for Chase, said: “We are working with the customers
to resolve these cases.” Online lenders say they work to abide by state
laws.

Payday lenders have been dogged by controversy almost from their inception
two decades ago from storefront check-cashing stores. In 2007, federal
lawmakers restricted the lenders from focusing on military members. Across
the country, states have steadily imposed caps on interest rates and fees
that effectively ban the high-rate loans.

While there are no exact measures of how many lenders have migrated online,
roughly three million Americans obtained an Internet payday loan in 2010,
according to a July
report<http://www.pewtrusts.org/our_work_report_detail.aspx?id=85899406010>by
the Pew Charitable Trusts. By 2016, Internet loans will make up
roughly
60 percent of the total payday loans, up from about 35 percent in 2011,
according to John Hecht, an analyst with the investment bank Stephens Inc.
As of 2011, he said, the volume of online payday loans was $13 billion, up
more than 120 percent from $5.8 billion in 2006.

Facing increasingly inhospitable states, the lenders have also set up shop
offshore. A former used-car dealership owner, who runs a series of online
lenders through a shell corporation in Grenada, outlined the benefits of
operating remotely in a 2005 deposition. Put simply, it was “lawsuit
protection and tax reduction,” he said. Other lenders are based in Belize,
Malta, the Isle of Man and the West Indies, according to federal court
records.

At an industry conference last year, payday lenders discussed the benefits
of heading offshore. Jer Ayler, president of the payday loan consultant
Trihouse Inc., pinpointed Cancún, the Bahamas and Costa Rica as
particularly fertile locales.

State prosecutors have been battling to keep online lenders from illegally
making loans to residents where the loans are restricted. In December, Lori
Swanson, Minnesota’s attorney general, settled with Sure
Advance<http://www.ag.state.mn.us/Consumer/PressRelease/121220InternetPayDay.asp>L.L.C.
over claims that the online lender was operating without a license
to make loans with interest rates of up to 1,564 percent. In Illinois,
Attorney General Lisa Madigan is investigating a number of online lenders.

Arkansas’s attorney general, Dustin McDaniel, has been targeting lenders
illegally making loans in his state, and says the Internet firms are tough
to fight. “The Internet knows no borders,” he said. “There are layer upon
layer of cyber-entities and some are difficult to trace.”

Last January, he sued the operator of a number of online lenders, claiming
that the firms were breaking state law in Arkansas, which caps annual
interest rates on loans at 17 percent.

Now the Online Lenders Alliance, a trade group, is backing legislation that
would grant a federal charter for payday lenders. In supporting the bill,
Lisa McGreevy, the group’s chief executive, said: “A federal charter, as
opposed to the current conflicting state regulatory schemes, will establish
one clear set of rules for lenders to follow.”


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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