The Online Lenders Alliance wants the group that manages a U.S. payment system to clarify warnings on illegal use of the network by payday-loan firms, saying the message is posing a threat to legitimate business.
Nacha, which coordinates the Automated Clearing House network, should explain that legal online lending shouldn't be blocked from its system, Lisa S. McGreevy, president and chief executive officer of the Online Lenders Alliance wrote in a letter last week. Banks have gotten the wrong impression from Nacha based on its Aug. 8 letter calling on them to guard against acting as gateways for illicit loans, she wrote.
"We believe that your letter has been misinterpreted," McGreevy wrote. Banks have seen it as a directive to cut off processing for all online lenders, she said.
Payday loans transacted on the Internet use the network for both the credits and debits involved in the loans, and the lenders must conduct them through banks. In its Aug. 8 letter, Nacha explained it was trying to stamp out network use for illegal ends and told the banks "it is imperative that you immediately review your origination activity for the payday lenders" and terminate originations that violate Nacha rules.
Nacha's media office didn't respond to messages seeking comment on the letter from Alexandria, Virginia-based OLA.
"We understand that there may be bad actors on the Internet, but OLA members are not among them," McGreevy said in her Aug. 15 letter. Loans executed by lenders in her group are "freely sought and entered into by consumers, she said"
Regulators have pressured banks to cut ties with online lenders, and examiners from the Federal Deposit Insurance Corp. have audited banks to determine whether they work with some of the lenders, according to people briefed on their work who spoke on condition of anonymity because the regulator communications are confidential. The Department of Justice has issued subpoenas to banks and payment processors, leading them to stop doing business with some lenders, the people said.
The New York State Department of Financial Services also sent a letter to Nacha this month, stating concerns about "predatory" loans that violate state interest-rate caps. Benjamin M. Lawsky, superintendent of financial services, wrote that "access to the ACH system is the foot in the door that online payday lenders need to prey on vulnerable New Yorkers."
Nacha, based in Herndon, Virginia, manages development, administration and governance of the Automated Clearing House network, which it describes on its website as "the backbone for the electronic movement of money and data."