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Officials Investigate Banks’ Role in Internet Payday Lending

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Seattle, WAFor consumers who are low on money, Internet payday loans may seem like a great, short-term solution. But for some people, the payday loans that come with high interest rates and often trigger other fees push them further into financial trouble. Now complaints have arisen that major banks aid in predatory Internet lending practices by allowing companies to operate illegally in states in which they are banned.

Internet payday loans are loans that are expected to be paid back with the borrower’s next paycheck, usually in two weeks. In other words, they are advertised as short-term loans. If the borrower does not advise the lender that he or she intends to make a full payment and close the loan prior to the end of the term, the lender often only withdraws the interest and renews the loan for another month. The assumption on the part of the lender, then, is that the borrower will only pay the interest and the loan can be renewed, even though the loan is only intended to be until payday. In many situations, the borrower simply cannot afford to pay back the loan in two weeks and makes the decision to renew the loan him or herself.

Some states have laws against payday loans; however, their availability over the Internet has made regulation of the loans difficult. People who live in states that prohibit payday loans can easily apply for them online, and may not realize they live in a state that has banned the loan.

Large banks are not the lenders in these situations. Rather, the loans come from payday loan companies. But the banks play a roll if they allow the lender to automatically withdraw money from the borrower’s account. And although that might not sound all that sinister, the banks can make a lot of money off these automatic withdrawals.

If there is not enough money in the customer’s account to cover the automatic withdrawal, the withdrawal can trigger insufficient fund fees, overdraft fees or other financial fees, making money for the bank. According to a report by The Pew Charitable Trusts (“How Borrowers Choose and Repay Payday Loans: Payday Lending in America,” 2/20/13; online at, 27 percent of borrowers are forced into overdraft by an automatic withdrawal from a payday lender.

Furthermore, some customers complain that banks still allow these automatic withdrawals even after the customer has requested they be stopped. The New York Times (2/23/13) reports on one customer who requested a bank close her account to stop the automatic withdrawals. The bank, however, left the account open and from April to May, she racked up more than $1,500 in fees linked to payday lender automatic withdrawals.

NBC News (5/12/13) reports on a man who initially borrowed $400 for a car repair but wound up taking out $3,000 in loans to cover interest costs, owed $12,000 and was kicked out of his apartment.

Officials are now looking into what role the major banks play in allowing payday lenders to do business in states where such companies are prohibited.


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Posted by

plain green loan i borrow $1600 ibeenbut itry keep up know backthe paymant

Posted by

INsta Loans tried to take money from my account twice and twice incurred NSA charges against my account. I told them I could not pay it back on time and that I would be in as soon as I could. Soon after, Insta Loan took over $500 for a loan of only $260, my bank (TD) warned me that the loan company could access ANY account that I had at the bank and take money from ANY of them. I was told there was nothing the bank could do to stop it. Stop payments mean nothing and the loan company takes the money whenever they feel like "hitting" your account. Mine was supposed to be due on the 20th, but, they went after the money on the 1st!!

It was a very tough time in our lives (single parent) and I was forced to seek help with social services. The loan company ended up stealing my very first "emergency" welfare cheque and ignored my faxed complaint to their office. :((

Posted by

I have had all these problems happen and had to close accounts to ensure money is not taken out automatically by payday loan co or further overdraft charges being taken by bank


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