A New Jersey woman is suing U.S. Bank, alleging that the bank let an illegal payday lender onto its electronic payments network.
Payday loans can be financial quicksand for borrowers, and authorities have labored for years to put a lid on deceptive short-term loans with interest rates such as 400 percent.
Quietly, the fight is shifting from the companies that hawk the loans to the mainstream financial institutions that help to process them.
In the latest jab, a potential class-action lawsuit filed last week by a New Jersey borrower aims to hold Minneapolis-based U.S. Bank liable for its behind-the-scenes role in processing allegedly illegal loans that she got last year from online payday lender National Opportunities Unlimited Inc.
The borrower, Angel L. Gordon, wound up spending $1,814 over 10 weeks to repay an $800 payday loan.
U.S. Bank didn’t make the payday loan, and Gordon didn’t have a bank account at U.S. Bank. But in the complicated world of the country’s electronic payment network, it was U.S. Bank that originated the transactions for National Opportunities Unlimited, allowing the company to zap money in and out of her checking account at Affinity Federal Credit Union, according to the complaint Gordon filed in federal court in Minnesota.
“Angel Gordon is a hardworking single mother that lives in a state that has banned payday loans and who paid over 600 percent APR on a loan,” said her lawyer, former Kansas Attorney General Steve Six, who now works at Stueve Siegel Hanson in Kansas City, Mo. “As alleged in the complaint, without U.S. Bank aiding these payday lenders in processing the illegal loans, they would not be able to prey on consumers like Angel.”
U.S. Bank would not discuss the lawsuit.
“We believe it is without merit and will be defending ourselves vigorously,” said bank spokeswoman Nicole Garrison-Sprenger.
U.S. Bank no longer processes transactions for National Opportunities Unlimited, she said. She also said that U.S. Bank added a feature this year that allows customers to block network transactions from a specified merchant or payday lender.
Gordon alleges that the bank knew the payday loans were illegal in at least 13 states and yet still gave the company access to the payments network for debiting and crediting accounts. A red flag, it says, is the high-return rate on payday transactions.
The lawsuit accuses U.S. Bank of racketeering and of violating New Jersey’s consumer fraud act, as well as aiding and abetting violations of New Jersey’s criminal usury law, among other things. It says there are thousands of victims.
Minnesota is not one of the states in the lawsuit because the state’s payday rules are less restrictive.
Gordon declined to be interviewed.
The suit is one of at least nine filed around the country since mid-September by different law firms accusing mainstream lenders of colluding with payday lenders by introducing their transactions to the electronic payments network called the Automated Clearing House network, or ACH network.
Among the targets: BMO Harris Bank, First Premier Bank, National Bank of California and Generations Federal Credit Union.
JPMorgan Chase & Co. settled a similar last suit earlier this year and changed how it processes payday transactions.
The string of private actions comes as state and federal authorities bear down on online payday lending.