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.