For the past year, CFO Consulting Group has been pushing for tighter regulation of the Payday Loan industry within the state of Rhode Island. Nationally, storefront payday lenders are facing tighter regulations across the country. Twenty-five states currently have pending legislation that pertain to payday lending regulation.
As storefront payday lenders are coming under intense scrutiny in some states, another form of usury is flying under the radar. Faced with the prospect of storefront payday businesses becoming unprofitable under new regulations, many payday lenders are moving their operations to the shadowy, unregulated world of the internet. A growing number of the lenders have set up online operations in less regulated states in the U.S. or foreign countries like Belize, Malta, and the West Indies in order to avoid statewide caps on interest rates. There are a few differences between the traditional storefront payday loan system and the payday loans available online. Via the internet, there is an immediate approval system, which enables customers to get in touch with numerous “expert” lenders and receive cash deposited directly into their accounts. This allows lenders to have direct access to borrowers’ bank accounts.
Sadly, major banks have become enablers of internet-based payday lenders. A recent New York Times article states that while large banks – including Bank of America, and Wells Fargo among others – do not make the loans, they are a critical link for the lenders. They enable the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. This is a practice that has been flourishing on the internet for years. However, there has been some movement within the United States Congress and some of the major banks to help combat this issue.
JPMorgan, the nation’s largest bank by assets, will give customers whose bank accounts can be accessed by the online payday lenders more power to halt withdrawals and close their accounts. Within the United States Congress, Senator Jeff Merkley of Oregon introduced a bill in January to further rein in payday lending. The bill, S. 172, or better known as the SAFE Lending Act, would crack down on the worst practices of the online payday lending industry and give states more power to protect consumers from predatory loans. As of March, the bill is sitting in committee.
CFO Consulting Group is looking forward to seeing the United States Senate & House of Representatives vote in favor of the SAFE Lending Act to successfully bring to an end the predatory practice of payday lending in internet and storefront locations nationally.
By Brett Smiley, co-founder of CFO Consulting Group