While authorities have tried for years to drive high-cost online lenders out of business, New York state regulators may have been successful by cutting off their access to the payments system. New York Financial Services Superintendent Benjamin Lawsky called on the banking industry to "choke off" online lenders' access to customers' checking accounts.
Soon after, the industry-run electronic payments group Nacha cautioned banks that authorizing access to customer accounts could violate Nacha rules. Nacha's letter warned that "purported authorizations to pay illegal loans that are unenforceable under applicable state law" are not valid. Many unlicensed online lenders claim sovereignty immunity because of their ties to Indian tribes, and two tribes have said in a federal lawsuit that their businesses' access to the payments system has dwindled because of New York's "threats and coercion."
Of the 35 lenders that New York officials targeted, five now have notices on their websites that they are either temporarily or permanently halting their lending operations. This includes Western Sky Financial, Discount Advances, MyCashNow.com, PayDayMax, and Sure Advance. Four other lenders no longer have operational websites. Uriah King, state director of the Center for Responsible Lending, says New York's crackdown was "a culmination of just dozens and dozens of state enforcement actions" in recent years. "New York was really the tipping point, and it was probably the most aggressive," he added.