ALBANY, N.Y. After years of futile attempts to drive high-cost online lenders out of business, at least one state's regulators appear to have hit on a successful strategy: cutting off their access to the payments system.
Since Aug. 5, when New York state regulators put a target on 35 specific lenders that it said were not licensed to make loans in the state, 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 has responded to the regulatory edict, but it appears banks are falling quickly into line, according to American Banker, an affiliate of Credit Union Journal.
Just three days after New York Financial Services Superintendent Benjamin Lawsky called on the industry to "choke off" the online lenders' access to the ACH payments network, the industry-run electronic payments group Nacha sent a letter to banks warning them that authorizing access to customer accounts could violate Nacha rules.
Many of the unlicensed online lenders claim ties to Indian tribes and say that tribal sovereignty immunity exempts them from state laws. In a federal lawsuit filed last week against New York officials, two tribes said that their businesses' access to the payments system has dwindled quickly this month.
The lawsuit describes Nacha's letter as "almost certainly" being a result of New York's "threats and coercion." It also states that banks have told tribal lenders that New York demanded that they stop processing payments for the companies.
Two banking industry trade groups the American Bankers Association and the Consumer Bankers Association declined to comment.
Of the 35 lenders targeted by New York officials, five now have notices on their websites stating that they are either temporarily or permanently halting their lending operations. Those firms are: Western Sky Financial, Discount Advances, MyCashNow.com, PayDayMax, and Sure Advance.
Another four lenders no longer have working websites: Tribal Credit Line, Fast Cash Personal Loans, Bayside Loans and SCS Processing.
