Deterring Predatory Lending
The New York Times
By: The Editorial Board
March 20, 2013
JPMorgan Chase has instituted new policies intended to shield customers from predatory lenders who can charge 500 percent interest or more and who drain the borrower's bank account through automatic withdrawals.
The policies are a good first step, but banks generally should be doing more to protect their customers, especially in states like New York, where predatory lending has long been illegal. State and federal banking officials also need to expedite their investigations into the relationship between banks and predatory lenders, with the aim of developing industrywide regulations that protect the public.
New rules that go into effect at JPMorgan in May will limit the overdraft fees charged to the customer in cases in which the lender tries to collect a payment multiple times. The bank will also make it easier for customers to halt withdrawals by closing their accounts and will train employees to honor stop-payment requests promptly. The new policies will not prevent payday lenders from issuing predatory loans but will save borrowers the fees associated with repeated overdrafts.
New York is one of 15 states that have banned predatory, high-interest loans, which have been shown to drive low-income borrowers into bankruptcy or default. Even so, offshore lenders are increasingly evading these laws by offering the loans over the Internet, then automatically withdrawing payments from the borrower's account -- sometimes without permission. Under federal law, borrowers are entitled to revoke the lender's automatic withdrawal privileges or simply close the account.
But recent reports have recounted cases of customers who were ignored even after pleading with the banks to stop the automatic withdrawals. A federal lawsuit against JPMorgan last fall documented the case of a New York woman whose lender charged her nearly 800 percent interest but who could not get the bank to close the account. The lender tried to debit her account 55 times, resulting in more than $1,500 in fees.
Banks generally could adopt common practices that would allow customers to close their accounts at any time and deny lenders access to automatic payments in states where predatory loans are illegal. If the banks refuse, federal lawmakers and regulators should force the issue.
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