As American Banker's Kevin Wack told us today, while the Indian tribes may be suing the New York State banking superintendent (previous post here), the payday lenders working with the tribes are dropping like they've been gut-shot.
Since Aug. 5,...at least nine of the companies have halted operations. Key to the state's effort was a letter it sent to more than 100 banks in which it pressured them to prohibit online lenders from accessing customers' checking accounts.
The banking industry has largely been mum about how it's responded to the regulatory edict, but it appears banks are falling quickly into line.
The regulators have been assisted by Nacha.
[T]he industry-run electronic payments group Nacha sent a letter to banks warning them that authorizing access to customer accounts could violate Nacha rules.
In the letter, Nacha stated that under its rules, "purported authorizations to pay illegal loans that are unenforceable under applicable state law" are not valid.
I got a kick out of the head of NACHA trying to pooh-pooh its influence on banks.
Jan Estep, president and chief executive officer of Nacha, downplayed the importance of its letter to banks. "So primarily what we've been doing is reminding financial institutions of their existing responsibilities relative to due diligence in terms of their customers that they support," she said.
So, primarily, Nacha is pointing a gun at the head of the banks that are working with these payday lenders and growling,"But being this is a .44 Magnum, the most powerful handgun in the world and will blow you head clean off, you've gotta ask yourself a question: 'Do I feel lucky?' Well, do ya, punk?" Yeah, "just a reminder." We get it.
This is the same tactic that we discussed last week in the case of the state of Maryland: turning up the heat on the banks that work with the lenders and process the loan payments from the customers' bank accounts. Without those banks, the lenders can't survive. To most banks, there's a pretty low threshold of acceptable pain where regulatory pressure is concerned. Processing these payments, no matter how much money they are making from the business line, is simply not worth engendering the increased scrutiny and ill-will from the regulators that will come from continuing to do this business, even if the regulators can't prove that it's illegal or, even, unsafe and unsound.
Banking regulators, especially in Blue State America, have decided that payday lending is "not fair," and, therefore, should not be done. They're going first after the low-hanging fruit, that being unlicensed tribal-affiliated lenders who are easier targets than long-time payday lenders who don't make loans in states in which they are not licensed. However, the handwriting is on the wall for the entire industry, and the words spelled out are neither"Peace" nor "Love."
Today, payday lending. Tomorrow?