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NACHA, the industry group that manages and governs the electronic payments network, wouldn’t discuss the dispute.
Lauren Saunders, managing attorney at the Boston-based National Consumer Law Center, said she was shocked to hear that U.S. Bank would knowingly process illegal payments.
“Banks have a duty to know their customers and to avoid processing illegal payments,” she said.
She called the focus on banks facilitating payday transactions “an important new front on attacking illegal lending and can help choke off payments to unscrupulous players more effectively than fighting the lenders one consumer at a time.”
The National Consumer Law Center and more than two dozen other consumer groups sent a letter last month to federal banking regulators asking them to stop depository institutions and payment processors from playing middleman on illegal transactions.
New York officials also are pursuing banks. But it’s cooperation they’re after.
In August, New York’s superintendent of financial services sent letters to 117 banks asking for help creating safeguards to choke off the payday lending industry’s access to the ACH network. The letter names 35 illegal lenders that it had ordered to stop making loans in New York, including National Opportunities Unlimited.
“Banks have proved to be — even if unintentionally — an essential cog in the vicious machinery that these purveyors of predatory loans use to do an end-run around New York law,” the letter said.
National Opportunities Unlimited has been in the cross-hairs of consumer advocates and state regulators for years. The company’s websites — itsmypayday.com and thecash spot.com — don’t appear to be operating. Calls to the company’s management were not returned.
Payment processing isn’t U.S. Bank’s only finger in the payday marketplace. It’s one of a handful of major banks that make payday-like loans for customers called deposit advances — U.S. Bank’s product is called Checking Account Advance. They are pitched to existing account holders as Band-Aids for financial emergencies and a way to avoid overdrafts, but can ensnare vulnerable consumers in a churn of repeat borrowing, consumer advocates say.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued preliminary guidance in April seeking to rein in the products and ensure that banks assess whether borrowers are able to pay back the money. The rules haven’t been finalized.
Jennifer Bjorhus • 612-673-4683