Why we need Operation Choke Point to stop Illegal Online Payday Lenders

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

Operation Choke Point is the name given to the Department of Justice’s increased focus on banks and other enablers of illegal online payday loans and other scams.

Wondering why this focus is necessary?  Take a look at a recent DOJ settlement with Four Oaks Bank.

According to the complaint against Four Oaks Bank, its business relationship with a payment processor essentially allowed illegal online lenders access to customer’s bank accounts to make illegal loans, charges, and withdrawals:

As of today, approximately 97 percent of TPPP-TX’s merchants for which Four Oaks Bank permits debits to consumers’ accounts are Internet payday lenders. A payday loan typically is a short-term, high interest loan that is not secured (made without collateral) and that has a repayment date coinciding with or close to the borrower’s next payday. Most payday loans are for $250 to $700. Annualized interest rates for Internet payday loans frequently range from 400 percent to 1,800 percent or more – far in excess of most states’ usury laws.

Wonder how these loans affect the consumer? Read more from the complaint:

The design, intent, and effect of these fraudulent Internet payday lenders’ conduct
creates a false pretext to withdraw money from borrowers’ bank accounts in amounts far exceeding the reasonable understanding and expectations of borrowers. Through this process of misleading and deceptive Internet payday lending, many of the borrowers are sucked into a vortex of debt and their bank accounts are debited until they are bled dry. Moreover, as a consequence of unanticipated loan extensions, rollovers, and unanticipated interest payments debited from their bank accounts, many of the borrowers incur further harm in the form of substantial overdraft or “insufficient funds” fees from their own banks.

If you want to see the personal impacts, read these stories from the complaint:

During the 20-month period from January 2011 until August 2012, Four Oaks Bank
received at least hundreds of Requests for Proof of Authorization from borrowers’ banks in connection with debits originated by TPPP-TX on behalf of some of its Internet payday lenders. In nearly all cases, the only evidence that a debit had been authorized is an Internet payday loan contract with the kind of facially misleading and deceptive loan repayment language described above.

The borrowers who have stated under penalty of perjury that their bank accounts have been debited without authority include:

a. A.H. is a resident of Arizona, which prohibits loans with an annualized
interest rate above 36 percent. Over the Internet, A.H. received a $400
loan from Payday Lender 2, purportedly of Montana, at an annualized
interest rate of 664.38 percent.

b. L.N. is a resident of Colorado, which effectively prohibits payday lending.
Over the Internet, L.N. received a $355 loan from Payday Lender 3,
purportedly of Montana, at an annualized interest rate of 664.38 percent.

c. C.D. is a resident of Georgia, which prohibits payday lending. Over the
Internet, C.D. received a $305 loan from Payday Lender 4, at an annualized
interest rate of 762.14 percent.

d. D.H. is a resident of Maryland, which prohibits loans with an annualized
interest rate above 33 percent. Over the Internet, D.H. received a $1,000 loan
from Payday Lender 1, purportedly located in Belize, Central America,
at an annualized interest rate of 995.45 percent.

e. I.C. is a resident of Massachusetts, which prohibits loans with annualized
interest rates above 23 percent. Over the Internet, I.C. received a $305
loan from Payday Lender 5, at an annualized interest rate of 644.12 percent.

f. A.H. is a resident of Missouri, which prohibits loans in which the interest
and fees exceed 75 percent of the loan amount, and loans of less than 14
days in duration. Over the Internet, A.H. received a $500 loan from
Payday Lender 6 (operating under a fictitious name), purportedly of San
Jose, Costa Rica, at an annualized interest rate of 1,825 percent for a term of
seven days.

g. D.A. is a resident of New Jersey, which prohibits loans with an annualized
interest rate above 30 percent. Over the Internet, D.A. received a $200
loan from Payday Lender 7, at an annualized interest rate of 612.13 percent.

h. A.W. is a resident of New York, which prohibits loans with an annualized
interest rate above 25 percent. Over the Internet, A.W. received a $305
loan from Payday Lender 4, at an annualized interest rate of 1,095 percent.

i. D.M. is a resident of New York, which prohibits loans with an annualized
interest rate above 25 percent. Over the Internet, D.M. received a $500
loan from Payday Lender 8, at an annualized interest rate of 1,161.36
percent.

j. D.H. is a resident of New York, which prohibits loans with an annualized
interest rate above 25 percent. Over the Internet, D.H. received a $200
loan from Payday Lender 7, purportedly of Utah, at an annualized interest
rate of 1,804.72 percent.

k. D.G. is a resident of New York, which prohibits loans with an annualized
interest rate above 25 percent. Over the Internet, D.G. received a $500
loan from Payday Lender 6, at an annualized interest rate of 1,825 percent.

l. D.R. is a resident of New York, which prohibits loans with an annualized
interest rate above 25 percent. Over the Internet, D.R. received a $200
loan from Payday Lender 7, at an annualized interest of 1,804.72 percent.

m. A.F. is a resident of North Carolina, which prohibits loans with an
annualized interest rate above 36 percent. Over the Internet, A.F. received
a $600 loan from Payday Lender 1, purportedly of Belize, Central America,
at an annualized interest rate of 608.33 percent.

The California Reinvestment Coalition recently signed onto a letter with 26 other state and national consumer protection organizations, calling on the US Senate to support the efforts of Operation Choke Point, you can read the letter here.

UPDATE: If you’re angry about the damage caused by payday loans, consider signing our new petition to the Consumer Financial Protection Bureau, calling on Richard Cordray to implement strong consumer safeguards in the new rules they’re designing for payday loans.  You can sign it here: CFPB Petition

To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via TwitterGoogle+, watch our movies on our YouTube Channelsign up to receive our newsletter and action alerts, and of course, visit our website.

2 thoughts on “Why we need Operation Choke Point to stop Illegal Online Payday Lenders

  1. Pingback: Why Do Lawmakers Like Darrell Issa Want to Enable Illegal Ponzi Schemes?

  2. Pingback: California Reinvestment Coalition | The 10 Most Popular Stories in Consumer Finance in 2014 on CRC’s blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s