If you’re like most people, you see these expensive ads on television by the major banks ‘informing’ you of all the good things they do for you, and how much they care. Horsepuckey! They care about your money. They need it to invest in businesses that will make them hundreds of millions of dollars.
You’ve all seen advertisements for “payday loans” and “title loans”. Some states have wisely banned them, after learning that consumers can pay up to 500% interest or more. But the nation’s largest banks are helping these companies in their efforts to make money from those who can least afford it.
Fifteen states have banned the criminal process, so these companies have begun to use the internet, moving to more “friendly” states or offshore locations such as 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. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.
“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.
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.
Here’s the truth. At first look, it doesn’t appear banks can make money from simply authorizing the transfer of funds. Looking deeper, they love the idea of payday loans. Because the interest rates increase and become impossible for the consumer to pay them, 27% of borrowers become overdrawn in their bank accounts, allowing the banks to charge large fees to their customers.
Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.
These loans are easy to obtain, but difficult to terminate. If a borrower wishes to pay off the loan in full, they must notify the lender a minimum of three days before a payment is due. Otherwise the lender will “renew the loan”, and deduct an interest payment from the account. Under federal law customers are allowed to stop authorized withdrawals from their accounts, but complaints have been filed that some banks do not honor their requests.
Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.
For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.
Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.
“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.
But don’t expect our government to do anything about these criminal practices, they’re way too busy doing nothing, with the exception of posturing for the press.
Columnist-The Guardian Express