The California Department of Business Oversight (CDBO) has called on banks and credit unions to monitor and report illegal transactions of unlicensed payday lending activity, warning that it will be examining banks and credit unions to make sure they are taking preventative action. “Department examinations will review for compliance to ensure safeguards are in place to prevent unlicensed payday lenders from gaining access to the ACH network and victimizing Californians,” CDBO Commissioner Jan Lynn Owen wrote in a letter to financial institutions.
Banks and credit unions that do business with any unlicensed payday lenders may implicate security and soundness concerns, Owen said. For example, a financial institution may be in violation of Bank Secrecy Act/Anti-Money Laundering requirements if its due diligence procedures do not confirm a customer’s compliance with state licensing requirements. This year, the CDBO has taken enforcement actions against unlicensed online payday lenders, including issuing Internet alerts, desist-and-refrain orders, citations, and voiding transaction orders.