Thursday, June 19, 2014


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New DFS database tool to help banks identify and stop illegal, online payday lending

ALBANY - Bank of America is the first financial institution to agree to use a new Department of Financial Services (DFS)-created tool to help banks identify and stop illegal, online payday lending in New York. DFS built a database of companies that have been subject to actions by DFS based on evidence of illegal payday lending. The database will be a powerful due diligence tool for financial institutions to protect consumers and help ensure that electronic payment and debit networks are not used to transmit or collect on illegal, online payday loans to New Yorkers. Today’s announcement is the next in a series of steps DFS has taken during a more than year-long investigation to stop illegal payday lending over the Internet in New York.

“Our administration is continuing to aggressively combat online payday lending – and today we are urging the private sector to join us in protecting New Yorkers from this illegal activity,” Governor Andrew Cuomo said. “I applaud Bank of America for stepping up as an industry leader in this area and doing the right thing to help safeguard New York’s consumers.”

Benjamin M. Lawsky, Superintendent of Financial Services, said: “We are pleased that Bank of America set a strong example and partnered with us on this issue. In the coming days and weeks, we will be reaching out to additional banks asking that they join us in this effort. It is vital that we combat these illegal, predatory loans, which trap New Yorkers in destructive cycles of debt.”

Payday lending is illegal in New York under both civil and criminal usury statutes. In some cases, however, lenders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet – and collecting on them using electronic payment and debit networks – in an effort to avoid prosecution. Nonetheless, Internet payday lending is just as unlawful as payday lending made in person in New York.

Bank of America intends to use the database in several ways that will help stop illegal lending in New York. The database will enhance Bank of America’s due diligence and “know your customer” procedures by identifying companies that may be engaged in illegal lending. Bank of America plans to use this information to help confirm that its merchant customers are not using their accounts to make or collect on illegal payday loans to New York consumers. Bank of America also plans to use the database to identify payday lenders that engage in potentially illegal payday loan transactions with its New York consumer account holders, and, when appropriate, contact the lenders’ banks to notify them that the transactions may be illegal. Further, Bank of America will provide DFS with information about payday lending activities by lenders listed in the database including identifying lenders that continue to engage in potentially illegal lending activities despite the Department’s previous actions.

DFS’ efforts to provide banks with information about illegal payday lending activity have already been effective in stopping that activity in and to New York. In fact, since DFS has been providing information to banks and debit networks, many illegal payday lenders who had been lending in New York have stopped.