Twenty-six consumer advocacy and civil rights groups have sent a letter to federal regulators, demanding that they stop allowing banks and payment processors to facilitate illegal collections of payday loan payments.
In the letter, the groups thanked the agencies for their efforts so far, even as they pushed for stronger measures to stop practices in which illegal payments are taken out of consumers' bank accounts.
The letter focused on Internet payday loans, but also said heightened scrutiny would help stop Internet fraud, abusive debt-settlement fees and other illegal practices.
"Numerous regulatory and court actions have highlighted the crucial role that banks and payment processors play, intentionally or unintentionally, in processing illegal payments for Internet and telemarketing scammers, debt-settlement companies, payday lenders and others ... We encourage you to continue to closely monitor payments networks in order to identify those merchants that operate outside of the law and rely on access to consumers’ bank accounts to extract payments.
"Regulatory scrutiny of those who process payments for higher-risk merchants is necessary, not only to address the direct harm imposed upon consumers by the illegal transaction, but also to reduce the legal and reputational risks to insured depository financial institutions, consistent with longstanding supervisory expectations," the letter stated.
The groups that sent the letter included the National Consumer Law Center, Consumer Federation of America and Center for Responsible Lending.
In a statement, CFA Director of Financial Services Tom Feltner said banks have "an obligation to avoid processing payments for illegal activities."
Supporters of online payday loans have criticized regulatory scrutiny of payments to lenders that claim an affiliation with a Native American tribe that exempts them from state laws, according to the groups.
NCLC Managing Attorney Lauren Saunders explained in the statement that tribal immunity doesn't make an illegal loan legal.
"Banks and payment processors, which have no such immunity, must take swift action to address the legal and reputational risks associated with facilitating these illegal transactions," Saunders said.
The letter was sent to the Federal Reserve, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., U.S. Department of Justice, National Credit Union Administration and Federal Trade Commission.
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