New York is among 15 states plus the District of Columbia that have so far banned predatory payday loans, the kind that violate consumer rights and bilk customers with interest rates that exceed 1,000 percent.
And yet, these operations continue to be an ongoing problem. Even worse, some major banks are aiding payday loan collectors by allowing borrower personal accounts to be drained — even in states where such practices are illegal.
As New York Gov. Andrew Cuomo was recently quoted as saying, such operations prey on families who are already struggling and put additional pressure on them at a time when they are at their most vulnerable. They hit them with exorbitant interest rates and a multitude of hidden fees.
For those not familiar with these practices, they are entities that offer short-term cash advances to borrowers who are living paycheck to paycheck. These firms aren’t typically associated with any major bank, and they usually give borrowers a small amount against their next paycheck. In most cases, this amount is no more than a few hundred dollars.
If all works as it should, the borrower has the money to repay that loan once he or she receives the next paycheck. Where it gets problematic is the interest rates, which are often astronomical. Customers think they are paying off the principal balance of the loan when, in reality, they are only paying off the finance charges and minimum interest.
The New York Times recently reported that big-name financial institutions, such as Bank of America, Wells Fargo and JPMorgan Chase, are coming under heavy scrutiny because they are allowing these small payday lenders to collect these charges – even in places like New York where their very existence is against the law. In some cases, customers have had their entire checking accounts completely bled dry, while they begged the banks to stop the withdrawals.
One consumer reported that she borrowed $500 from a payday lender while in a pinch. The interest rate was 700 percent. When she couldn’t pay it all back immediately, the lender began calling her incessantly – 10 to 15 times daily – and began withdrawing $200 biweekly from her checking account. This was half her paycheck. And even after paying far more than the original loan, the company was still collecting, saying those withdrawals covered only interest and fees.
As some have noted, without the help of big banks, many of these operations simply couldn’t continue to thrive.
Banks have said they are only facilitating transactions that were previously authorized by customers.
But now, the state’s superintendent of financial services has said all of it is going to stop. Within the last several weeks, the state issued more than 115 cease and desist letters. Gov. Cuomo has instructed that the board representing large banking entities work closely with the state’s Department of Financial Services to cut off payday lenders’ access to consumers’ personal accounts.
Current law in the state indicates that lenders are barred from offering loans under $250,000 with interests rates exceeding 16 percent. Any loan above $250,000 can’t have an interest rate exceeding 25 percent annually.
Still, the law has proven tough to enforce. If you have been one of those affected by these predatory lenders, contact us today.
The Law Offices of Ira S. Newman provides consumer litigation representation in New York City, Long Island, Great Neck and throughout the area. Call 516-487-7375 or send us an e-mail.
New York Cracks Down On Predatory Payday Loans, Aug. 9, 2013, By Martin Michaels, MintPress News
More Blog Entries:
New York Consumer Rights Abused by Debt Collectors, July 30, 2013, New York City Consumer Rights Lawyer Blog