* Banks said to work with Internet payday lenders
* 15 US states ban loans, whose rates can reach 3 digits
Feb 24 Federal and state regulators are
examining whether some of the largest U.S. banks are helping
Internet-based lenders evade state laws that cap interest rates
on payday loans, The New York Times said on Sunday.
Citing several people with direct knowledge of the matter,
the newspaper said the FDIC and the Consumer Financial
Protection Bureau in Washington, D.C. are examining the role of
banks in online payday loans.
It also said Benjamin Lawsky, who heads New York State's
Department of Financial Services, is investigating how banks
enable online lenders to make high-rate loans to residents of
New York, where interest rates are capped at 25 percent.
Payday loans, typically a few hundred dollars in size,
enable cash-strapped borrowers to obtain quick funds to tide
them over until their next paychecks.
But the loans can carry effective annual interest rates that
reach well into three digits. Some consumer advocates consider
the loans a means to take advantage of financially desperate
Americans, who nonetheless shell out $7.4 billion a year for
them according to a Feb. 20 study by the Pew Charitable Trusts.
The newspaper did not identify the banks being examined.
But it said that while large banks such as Bank of America
Corp, JPMorgan Chase & Co and Wells Fargo & Co
do not make the actual loans, they do let lenders that
do to withdraw payments from customers' accounts, even if
customers have already begged them to stop.
According to the newspaper, 15 U.S. states ban payday loans,
but lenders are setting up online operations in places such as
Belize, Malta and the West Indies to more easily evade the caps.
Representatives of JPMorgan, Bank of America, Citigroup Inc
and Wells Fargo, the four largest U.S. banks, had no
immediate comment or did not immediately respond to requests for
The FDIC, the CFPB and Lawsky's office did not immediately
respond to requests for comment.
The newspaper said a Bank of America spokeswoman said that
bank has always honored requests to stop automatic withdrawals,
a JPMorgan spokeswoman said that bank is working to resolve open
cases, and Wells Fargo declined to comment.
"YOU NEVER CATCH UP"
According to the Pew study, Americans on average pay $520 in
finance charges for payday loans that average just $375.
Many of these borrowers find the process a never-ending
cycle that leaves them in the same financial binds where they
started, according to the study.
Fifty-eight percent of borrowers reported persistent
problems paying their bills, and 41 percent found they needed
help to repay the loans - such as by borrowing from friends or
family, selling personal possessions, or taking out other loans.
Moreover, 27 percent of payday loan borrowers said the loans
caused them to overdraw their checking accounts - enabling banks
to charge fees for those overdrafts.
"It seems like you never catch up, and it, it's just
check-to-check, and something breaks down, and the house needs
work, kids have school, just never catch up," a storefront
borrower in Chicago was quoted in the report as saying.
The borrower was then asked how long this had gone on. The
response: "Twenty years."