Probe Turns Up Heat on Banks

August 8, 2013
Wall Street Journal 
payday lending news

The Department of Justice has handed down subpoenas to banks and firms that process payments for "questionable" financial offerings -- including online payday lending, which swelled 10 percent from 2011 to $18.6 billion last year. The move is part of an investigation launched several months ago; but now, instead of setting its sights on individual firms, the government is pursuing the infrastructure through which companies withdraw money from consumers' bank accounts. Third-party payment firms help merchants and lenders process transactions through banks, but several government agencies are concerned about suspicious activities such as fraud and money laundering. DOJ filed civil charges last fall against First Bank of Delaware, alleging that it knowingly processed fraudulent financial transactions; and the now-dissolved bank agreed to settle the case. Officials say other banks are self-reporting wrongdoing to DOJ and are blocking access to sketchy payment processors. "We are changing the structures within the financial system that allow all kinds of fraudulent merchants to operate," one Justice Department official said. The FDIC also has started warning banks against processing payments on behalf of online short-term lenders.
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