Even as payday lenders attempt to defend their defective product, a growing number of actions by federal and state regulators are cracking down on their predatory practices.
In the past 10 days, four major federal agencies—the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), the Department of Justice (DOJ) and the Federal Trade Commission (FTC)—took significant actions against all types of payday lenders, including banks that support payday loans. Additionally, in recent months, numerous states have stepped up to rein in payday lending, including key enforcement actions by Attorneys General.
"Payday loans, regardless of whether made by banks, stores, or online, are designed to create a destructive cycle of debt." said Diane Standaert, senior legislative counsel at the Center for Responsible Lending. "Payday loans drain over $3 billion in fees a year, mostly due to churning individuals every payday."
The recent state and federal actions address several aspects of payday lending, including the applicability of state and federal law to tribal lenders, who often claim sovereign immunity, and online lenders who attempt to circumvent state laws:
DOJ (9/25) – Recommended national banks settle a lawsuit involving payment processing for illegal payday transactions.
CFPB (9/26) – Asserted that tribal payday lenders must respond to requirements of a civil investigation.
FDIC (9/27) – Issued a letter to banks it supervises underscoring banks' responsibility to ensure they are not facilitating fraudulent or other illegal activity.
FTC (9/13) – Filed an amicus brief opposing lender Western Sky's practice of forcing borrowers to settle disputes via tribal arbitration.
Southern District Court of New York (9/30) –Ruled that NY has the right to enforce its usury laws for state residents who obtain their loans over the internet from out-of-state lenders, including tribal lenders.
Iowa Department of Inspections and Appeals (9/26) – Ruled that online payday loans made by CashCall to Iowa residents are subject to the state's consumer protection laws. CashCall tried to assert that its abusive loans were shielded by tribal sovereign immunity.
Finally, the FDIC and OCC are finalizing rules for bank payday loans, and the CFPB is considering a rule that could apply to all types of payday loans.
Taken together, these actions reflect a broader movement to end abusive debt-trap payday loans, and affirm that state and federal regulators have the tools to address this type of predatory lending.
"Regulators at all levels have shown that payday lenders are not above the law, and neither are the banks that abet them," said Gary Kalman, CRL executive vice president for federal policy. "
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For more information, contact Ellen Schloemer at 919-539-9092 or ellen.schloemer@responsiblelending.org