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Regulators crack down on payday loans

By Marcie Geffner · Bankrate.com
Thursday, October 10, 2013
Posted: 8 am ET

Federal and state regulators are cracking down on payday lenders, according to the Center for Responsible Lending, a nonprofit policy and research organization in Durham, N.C.

In recent months and weeks, four federal agencies and a number of their state-level counterparts and attorneys general have taken such actions to address the applicability of state and federal law to tribal lenders and online lenders who attempt to circumvent state laws, among other practices, the CRL said.

Gary Kalman, CRL executive vice president for federal policy, said in a statement that the actions demonstrated that payday lenders weren't "above the law."

Here's a list, compiled by CRL, of actions against payday lenders:

The Justice Department recommended on Sept. 25 that national banks settle a lawsuit involving payment processing for payday transactions.

The Consumer Financial Protection Bureau asserted on Sept. 26 that tribal payday lenders, who often claim sovereign immunity, must respond to requirements of a civil investigation.

The Federal Deposit Insurance Corp. issued a letter on Sept. 27 to FDIC-supervised institutions underscoring their responsibility to ensure they don't facilitate fraudulent or other illegal activity.

The Federal Trade Commission filed a friend-of-the-court brief Sept. 13 opposing one payday lender's practice of forcing borrowers to settle disputes via tribal arbitration.

The U.S. District Court for the Southern District of New York ruled on Sept. 30 that the state has the right to enforce its usury laws for residents who obtain loans from out-of-state lenders, including tribal lenders, via the Internet.

The Iowa Department of Inspections and Appeals ruled on Sept. 26 that online payday loans made by one lender to Iowa residents are subject to the state's consumer protection laws. The lender had asserted that its loans were shielded by tribal sovereign immunity.

In a statement, CRL Senior Legislative Counsel Diane Standaert said all payday loans from banks, stores and online providers are designed to create a "destructive cycle" of debt.

"Payday loans drain over $3 billion in fees a year, mostly due to churning individuals every payday," Standaert said.

Churning refers to the industry practice of making repeated new loans to people who aren't able to pay off the short-term debt when it comes due.

Follow me on Twitter: @marciegeff.

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