New York state regulator Benjamin Lawsky on Tuesday recommended reforms that aim to prevent online payday lenders from debiting consumers' bank accounts through the automated clearing house network.
Lawsky suggested more stringent rules governing the behavior of banks that process ACH payments in a public letter to the industry-run electronic payments group Nacha. Nacha proposed in November an updated set of regulations that would require banks to apply heightened scrutiny to transactions made on behalf of online lenders.
The industry group's proposed amendments "do not adequately address the current abuses of the ACH network by... payday lenders who make usurious loans" to Empire State residents, the New York Financial Services Superintendent wrote in the letter.
The letter proposes that Nacha strengthen efforts to root out online payday lending by clarifying that ACH debit authorizations to repay high-cost loans are unenforceable in states where the practice is illegal. Nacha should also require banks to take prompt action when consumers make stop-payment requests and expand banks' due diligence obligations, according to the letter.
"Unless NACHA and its board of directors take bolder action, banks will continue to serve as a pipeline for the illegal activity by payday lenders who prey on consumers and brazenly violate New York law," Lawsky wrote.
Payday lending is illegal in New York and other states, but some lenders have sought to bypass the law by offering high-cost loans online and debiting payments from customers' bank accounts.
The Consumer Financial Protection Bureau also weighed in on Nacha's proposed rules Monday. The agency said that the association may have to take on additional monitoring and investigation responsibilities to ensure that the new rules are properly observed.
"We encourage Nacha and its members to devote further efforts to developing processes and standards to identify and isolate inappropriate conduct," the letter said.