Major Banks Aid in Payday Loans Banned by States

Major banks have been aligning themselves with internet payday loan companies, some of which charge interest rates of 500% on a single loan. With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates. While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association. This makes the state bans practically void, unless banks decide to stop cooperating with payday lenders. While I agree with O'Neil that banks don't have the right to monitor accounts, it is clear that payday loans are generally more harmful than helpful. It will be interesting to see if the government steps in and halts the banks cooperation with these lenders.

http://www.nytimes.com/2013/02/24/business/major-banks-aid-in-payday-loans-banned-by-states.html?pagewanted=all&_r=0