Suspicious Business Between Banks and Payday Lenders

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Banks and Payday Lenders | Anchorage, AK | MV Alaska LawSome American banks are failing to meet their obligation to act as gatekeepers to the U.S. financial system.  The Justice Department is weighing civil and criminal actions against banks that do business with predatory lenders.

These predatory lenders and untrustworthy online merchant have access to Americans’ bank accounts.  Banks have allowed these businesses, for a fee paid to the bank, to illegally take billions of dollars from consumer checking account.

A new initiative by the U.S. Justice Department, according to an article from the NY Times, called “Operation Choke Point” is cracking down on our banks’ nasty business with these lenders.

The business is typically done in the shadows and has gone easily undetected because the banks do not typically deal directly with the Internet merchants.

According to the article, the banks provide services to third-party payment processors, or a financial middleman, which handles payments for the merchant customers.

In the first actions brought on by the operation, the Justice Department brought a lawsuit accusing a bank of being “deliberately ignorant” that it was processing payments on behalf od payday lenders and a Ponzi scheme.

Officials say that as a result of this payment processing, the bank has enabled the companies to illegally withdraw more than $2.4 billion from customer checking accounts across the country.

The lawsuit brings to light how some senior bank executives ignore the warning signs of fraud while they collect hundreds of thousands of dollars in fees.  According to the article, this lawsuit is bigger than the one bank it prosecutes — it points to a problem popping up across the banking industry.

Under the Bank Secrecy Act, banks are required under federal law to make sure that money is not being laundered and to stop any suspicious activity.  Banks are supposed to thoroughly examine both customers and the companies that their customers do business with.

This crackdown operation could have a big impact on Internet payday lenders.  These businesses have shifted from storefronts to websites and offer short-term loans at interest rates.  These rates often go above 500 percent annually.

More and more states are enacting interest rate caps that ban the payday loans, so the lenders have been increasingly relying on banks for survival.  Without access provided by banks, it would be impossible for these lenders to operate.

According to the article, these short-term lenders say that when their loans are used responsibly they can provide necessary credit for all kinds of borrowing customers that would have been unable to use traditional banking services.

Though there are some supporters of payday lenders, it may not be enough to stop the investigation against them and their business with banks.

Some victims of the unscrupulous payday lenders are blaming the banks, saying that they wouldn’t have been put in to debt by the costly loans without the help that the banks give the lenders.

The motive for brushing off evidence that lender clients were breaking the law is the outsize profits.  The more suspicious the merchant, the greater the amount of fees a bank stands to collect.

Any time a consumer notices and unauthorized withdrawal from their account and request the money back, the bank makes money to process that return.

Federal prosecutors say that they are committed to continuing the investigation and stopping the easy access that lenders have to consumer bank accounts.

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About Jenn Messick

I am an attorney practicing at M/V Alaska Law, an Anchorage, AK law firm helping clients all throughout Alaska navigate legal issues in divorce, family law, probate, and bankruptcy. I'm an outdoors person who enjoys hiking, skiing, hunting, spending time with family, and the beautiful scenery in Alaska. Jenn Messick's Google+ Profile

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