Justice Going Wikileaks on Middlemen in Payday Lending Schemes

indexNew Orleans  By issuing subpoenas to the financial institutions that are enabling blatantly illegal payday lending schemes and scams, the Department of Justice with provocation from the New York State Attorney General’s actions, finally seems to be getting serious about stopping these predators, largely by picking up a page from the State Department’s Wikileaks assault in 2010.  The strategy is essentially, “if you can’t touch them, then go after whoever is helping them.”

            In the run-up to the first Wikileaks disclosures in the Guardian, New York Times, Der Spiegel, and other publications, Senator Lieberman of Connecticut and the State Department with no legal basis squeezed off Wikileaks’ funding stream by convincing PayPal, Visa, and banking institutions to deny Wikileaks access to any ability to receive funds, largely crippling the organization.  With payday lending predators the Justice Department is trying the same strategy but has stronger legal standing since a 1989 act passed during the savings and loan scandals at the time allows financial recovery from banks and other financial transaction processors if there is fraud or other violations

            The back story on this version of payday lending predation is e-commerce gone rogue.  As we have discussed before, 15 states including New York in addition to the District of Columbia, have lending caps on payday lenders while 35 let them get away with wholesale murder.  On-line payday lending has now passed $18 billion in transactions and poaches victims everywhere, including in places where they are barred.  Additionally, and sadly, there are some Indian tribes making a sovereignty argument, that have allowed themselves to be home base for some of these shenanigans, along with “anything goes” states like Utah and Delaware.   This online activity is huge and according to Arkansas-based Stephens, Inc. now is 40% of the total payday lending business.   And, some of this is not payday lending but outright scams promising jobs or delivery of goods that will never happen once the transaction is processed.

            Supposedly, according to the Wall Street Journal, both the Office of the Controller of the Currency and the FDIC are telling their member financial institutions to clean-up their acts and evaluate their relationships as middlemen with these loan sharks and hustlers.  JP Morgan Chase earlier ran from a scandal where they were enabling false charges by larding on numerous hits on accounts with insufficient funds totally thousands of dollars for these shysters.  Chase now claims that it will only hit and charge once. 

            It’s too early to tell whether this is simply drum beating to warn the banks or a serious charge against the bad guys and their ever-so-willing partners in crime among financial institutions, both big and small, but at least if the bugle is blaring, we can finally hope that the troops are coming.

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