Payday Loan Lawsuits Continue Against Banks

Following last week’s class action lawsuit against five banks accused of aiding payday loan companies, a new suit was filed Friday in Pennsylvania against three banks – including, once more, BMO Harris Bank NA.

Payday loan companies often charge triple-digit interest rates.

Last week’s proposed class action lawsuit was filed over allegations that the banks are aiding payday loan companies by providing access to payment processing systems - despite the fact that several states have banned the practice of offering payday loans entirely. Friday’s newly filed case against North American Banking Co., First International Bank & Trust, and BMO Harris Bank NA alleges that the banks shared access to the Automatic Clearing House network with payday loan companies, allowing the companies to debit loan payments from customers’ accounts. The suit alleges that, by doing so, the banks allowed payday loan companies to operate within the state even though payday loan companies are banned in Pennsylvania. Automatic Clearing House is one of the most widely used payment processing companies in the United States.

Payday loans are expressly prohibited in three states – New York, New Jersey and Arkansas – and are de facto illegal due to legislation in Arizona, Connecticut, Maryland, Massachusetts, North Carolina, Pennsylvania, Vermont, West Virginia and the District of Columbia. Five additional states – Oregon, New Hampshire, Ohio, Montana, Colorado and Maine - regulate the practice by limiting interest rates while the remaining thirty-two states have no restrictions on high-interest loan companies. Payday loan companies often charge triple-digit interest rates.

As states move to regulate or ban payday loan companies, the industry has moved increasingly online, making it harder for individual state laws to be enforced. The recent lawsuits have been filed against banks that are registered in states where payday loans are illegal. In both Friday’s and last Monday’s lawsuits, the banks are accused of providing payday loan companies access to the ACH payment processing systems, allowing the companies to automatically take loan payments from users’ accounts.

The plaintiff in the Pennsylvania lawsuit, Patricia Booth, claims in the complaint that payments made to payday loans companies from her bank account would not have been possible without the banks’ permission to access the ACH network. Booth has taken out three separate high-interest loans and the payments for these are now being debited from her account.

The suit seeks to certify a class membership of borrowers with a sub-class of Pennsylvania borrowers, and is being heard in the U.S. District Court for the Eastern District of Pennsylvania.