This week, federal regulators signaled a large shift in their treatment of online payday lenders and the banks that aid them when the U.S. Department of Justice filed a consumer protection lawsuit against a North Carolina bank that allegedly helped payday lenders engage in fraudulent activities.
Banks Warned to Steer Clear of Online Payday Lenders
The pending lawsuit, which takes aim against a small North Carolina bank, Four Oak Bank & Trust Company, is the culmination of months of effort taken under Operation Check Point, a regulatory program created by multiple agencies that is looking to prevent banks from processing funds originated by online payday lenders.
Sources say federal officials are looking to limit online payday lenders' access to more traditional banking services because these payday lenders are suspected of committing a broad range of consumer fraud, including charging exorbitant interest rates, hiding the real cost of short-term loans, and preying on certain vulnerable classes of consumers.
According to the Department of Justice's recent lawsuit, Four Oaks allegedly failed to exercise adequate control over the online payday lenders who processed money through its system. And while this bank is only a relatively small fish in a large financial sea, sources believe similar lawsuits in the future could raise the banking costs for both banks and online payday lenders, which could eventually sever their relationship.
Online Payday Lenders Pose Real Threat to Illinois Consumers
Brick-and-mortar payday lenders have gained a reputation as bad news for consumers, as they routinely charge wildly unfair interest rates in exchange for payday loans. Online payday outfits, however, are even less reputable, as they often operate under less scrutiny than more traditional payday lenders.
Of course, for some consumers, payday loans may be the only available source of credit. If this is the case, make sure you know the exact terms of any potential payday loan before you sign up for it. And if you believe you've been the target of a fraudulent loan, contact an Illinois consumer protection attorney today to learn more about your legal rights.