Major Banks Aid in Payday Loans Banned by States

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.

But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.

The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.

Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.

Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.

While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.

Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.

A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.

Communications Satellites, Banned as ‘Weapons,’ Now Legal for Export

Although the United States founded the industry, manufacturers were forced to pull back from international markets after a 1999 law categorized the satellites as weapons and restricted their export. At the time, Congress was fearful that selling satellites abroad could allow technology secrets to fall into the wrong hands.

The defense bill that President Obama signed will undo that step and let American companies sell communications satellites as civilian technology rather than as deadly arms. Among the beneficiaries will be companies like Boeing, Hughes and Space Systems/Loral.

“This is a tremendous assist for an industry that is inherently international,” said Patricia A. Cooper, president of the Satellite Industry Association, a business group in Washington. “It will ensure our place at the forefront of space.”

As a practical matter, communications satellites made their debut in 1964 and quickly became stars of the space age. The first craft, orbiting at 22,300 miles, relayed signals to the United States from Japan that let American television viewers watch live coverage of the 1964 Olympic Games in Tokyo.

But the industry stumbled 13 years ago after Republicans in Congress pressed for a law that restricted communications satellite exports. The lawmakers praised it as a security precaution that would prevent China and other perceived foes from stealing technology secrets. Detractors saw it as a cynical ploy meant to discredit the Clinton administration and its policy of Chinese engagement.

That law put communications satellites on Washington’s list of export-controlled munitions: tools of war like tanks, bombs, missiles and equipment for making nuclear arms. Foreign companies took the opportunity to increase their satellite sales.

The new law gives Mr. Obama the authority to return communications satellites to their previous status as civilian technology. It retains provisions that restrict the export of satellites to nations like China and North Korea, and to sponsors of state terrorism like Iran.

Senator Michael Bennet, Democrat of Colorado, who introduced a bill to change the policy on satellite exports and whose state is a space industry hub, said the measure offered satellite manufacturers a crucial lift.

“Companies across the country have been operating at a disadvantage due to these policies,” he said in a statement. “These reforms will give our businesses a chance to compete globally while still protecting our national security interests.”

The strict export controls arose from a political fight over satellite launchings by China, which in the 1980s began offering cheap rides into orbit on low-cost rockets. Presidents Ronald Reagan and George H. W. Bush, both Republicans, approved transfers of American spacecraft to Chinese rockets, as did President Bill Clinton, a Democrat.

Starting in early 1998, a series of upsets brought the expanding trade to a halt. Two American satellite makers involved in the Chinese launchings, Hughes and Loral, were accused of giving China advice about making not only commercial rockets, but also military missiles.

Republicans, who controlled Congress at the time, argued that satellite exports could lead to a hemorrhage of secret materials and information, and said that China might already have stolen encryption secrets.

After the strict export rules took effect in 1999, the legal complications involved in selling communications satellites and components abroad contributed to a sharp decline in the American share of the market, from a dominating position to about 50 percent today.

During the 2008 presidential campaign, Mr. Obama said the rules had “unduly hampered the competitiveness of the domestic aerospace industry” and vowed to push for change.

Representative Howard L. Berman, Democrat of California, who for a decade helped lead the movement for change, said its culmination as law would help restore the nation’s competitiveness in the global satellite market.

“Treating commercial satellites and components as if they were lethal weapons, regardless of whether they’re going to friend or foe, has gravely harmed U.S. space manufacturers,” he said.

Mr. Berman added that the benefits extended beyond the manufacturers. The national security establishment relies on the companies and their technological skills to fulfill the government’s satellite needs and to develop spacecraft involved in a wide range of military missions.

“If they can’t compete in the international marketplace,” he said of the companies, “they can’t innovate and cannot survive.”