Regulators and lawmakers have long been attempting to limit payday loans, but the struggle is moving away from the companies that offer the loans and in the direction of the mainstream financial institutions that help process them. New Jersey borrower Angel L. Gordon, for example, has filed a potential class-action lawsuit against U.S. Bank for its role in processing allegedly illegal loans that she obtained last year from online lender National Opportunities Unlimited Inc. Gordon spent $1,814 over 10 weeks to repay an $800 advance.
Although U.S. Bank did not make the loan and had no banking relationship with Gordon, it originated the transactions for National Opportunities Unlimited. This allowed the company to process money in and out of Gordon's credit union checking account, according to her complaint. Spokeswoman Nicole Garrison-Sprenger said U.S. Bank no longer processes transactions for National Opportunities Unlimited and has added a feature that allows customers to block network transactions from a specified merchant or payday lender.
Gordon's complaint alleges that U.S. Bank knew the payday loans were illegal in at least 13 states and still gave the company access to the payments network. The lawsuit accuses the bank of racketeering and of violating New Jersey’s consumer fraud act. At least nine suits have been filed nationwide since mid-September, accusing mainstream lenders of colluding with payday lenders by permitting their transactions to use the electronic payments system called the Automated Clearing House network.
The National Consumer Law Center has asked federal banking regulators to stop depository institutions and payment processors from serving as middlemen on such transactions. In August, New York financial regulators asked 117 banks to help create safeguards to cut off payday lenders' access to the ACH network.