Spotlight On The Short-Term Credit Crackdown

Short-term lending is under a new round of attacks, and this time some banks are feeling the heat. The New York State Department of Financial Services recently issued a letter to 117 banks requesting that they “choke off" automated clearing house (ACH) payment access to their customers’ accounts, and other state regulators have taken the same approach. If the loans cannot be repaid, the thinking goes, the loans will not be made in the first place and online lenders will be forced out of business.

Federal authorities may well be on a similar path. The Consumer Financial Protection Bureau published a white paper relating to payday loans in May, concluding that they are “debt traps” for many consumers, and has promised activity in the near term. Director Richard Cordray has acknowledged that the bureau is partnering with other regulators to address the role of banks in “financing and collecting the money.”

Originally Published in Law360, New York - October 2, 2013.

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