Trying to Stop Illegal Payday Lending


You may see ads online for quick cash, short term loans, or “cash by tomorrow.” Think of these offers as a swamp that will suck you into financial quicksand.

The high interest rates, sometimes 400 to 600 percent, can lead you into a cycle of debt that’s difficult to escape.

floating money

That’s why some states like New York continue to try to crack down and stop illegal payday lending.

While payday lending is not outlawed in every state, New York law clearly bans these high interest loans. But the Internet makes it easy for payday lenders to do an end run around New York’s civil and criminal laws.

Benjamin M. Lawsky, Superintendent of Financial Services (DFS) sent a critical letter to NACHA, the electronic payments organization that manages the network, which process payments for online payday loans. 

He’s dissatisfied with the organization’s efforts to regulate groups that use its system. He wrote,  “Unfortunately, NACHA’s reforms do not go far enough and continue to leave New Yorkers vulnerable to predatory payday lending over the Internet. Unless NACHA and its board of directors take bolder action, banks will continue to serve as a pipeline for the illegal activity by payday lenders who prey on consumers and brazenly violate New York law.”

Courtesy Creative Commons via Flickr
Courtesy Creative Commons via Flickr

Lawsky wants NACHA to issue a clear policy that says it’s illegal to debit money for payday loans in New York State. He also wants the group to put banks that do business with the payday lenders on notice that it’s their obligation to make sure debits are not processed, and he wants the banks to honor stop payment requests when borrowers realize they’ve made a big mistake.

In August 2013, Lawsky also demanded that 35 companies stop offering illegal payday loans online to New York customers. Of that number, 23 companies complied

And in December 2013, DFS announced that it was expanding its investigation into payday lending and sent subpoenas to 16 online ‘lead generation’ firms suspected of deceptive or misleading marketing of illegal, online payday loans in New York.

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 What’s Wrong With Payday Loans?

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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.

2 thoughts on “Trying to Stop Illegal Payday Lending”

  1. Good point. The on line payday loans that people get are easy to legally get them out of them. It does not even make sense that these payday loans even try to work in states such as New York. Two maybe three phone calls and the people are out of the illegal contract. People pay these loans back as good as they can because how they are threatened and scared into paying it back. We love getting people from New York because it is so easy to get them out and the New York Government hates the payday loan industry. Other states where it is legal we have to dig and find the loop holes in the laws to get them out of a contract. Then the law makers in several states are being paid off by the payday loan industry!

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