There are 15 states where Internet payday loans or unlicensed payday loan lending are illegal. In addition to Arizona, California and New York, states such as Ohio, Massachusetts and New Jersey have outlawed the loans, which typically come with outrageous interest rates. In addition to charging high interest rates, Internet payday loan companies have been accused of automatically renewing loans and charging fees that were not previously disclosed.
They gain access to customers’ bank accounts by requiring account information to deposit the loan in the customer’s account or to withdraw payments from the accounts. They then automatically withdraw the loan payment, along with a variety of fees and interest charges, even if the customer was not aware of those fees. In states where the Internet payday loans are illegal, regulators are going after banks for their role in allowing the payday loan companies to operate.
The issue is that by allowing these automatic withdrawals to occur, even after customers have requested they stop, banks aid these payday loan companies in operating even in states where they are illegal. Internet loan companies do this by operating out of a state where the loans are legal, but offering loans in other states including those in which payday loans are illegal.
Bloomberg (8/8/13) reports that both the Department of Justice and the Federal Deposit Insurance Corp. have put pressure on the banks to stop doing business with online lenders.
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“Jupiter Funding has preyed on Virginia consumers by making high-interest rate loans over the Internet without any regulatory oversight,” Cuccinelli said in a written statement (7/18/13).
Georgia Attorney General Sam Olens has also filed a lawsuit against Internet payday loan companies.