NYDFS, Visa, and MasterCard Put Brakes on Payday Loans
New York’s Department of Financial Services (NYDFS) together with Visa and MasterCard are clamping down on payday loans.
Payday loans are short-term, named such because they’re taken out prior to, and repaid after receiving a paycheck.
While eleven states (including New York) have made payday loans illegal or restrictive, several have not imposed a cap on interest rates, which has led some loans to have interest rates upward of 780 percent annually.
This has led to payday loans garnering a reputation of being predatory, due to high interest rates, and the main borrowers being lower income workers.
The Department of Financial Services is aiming to stop payday loans made online, specifically through prepaid and debit card transactions, which are as illegal as carrying out in-person loans.
The NYDFS will provide “names of lenders, URLs, and any other identifying information that may be useful” to the card companies, according to the release.
Visa and MasterCard have an imperative to curtail the usage of their payment networks for the funding of payday loans, likely due to the United States Department of Justice’s Operation Choke Point.
Introduced in 2013, the project aims to cut off traditional financing for certain industries, including firearm sales, drugs, and payday loans.
Operation Choke Point put the responsibility on banks and financial services providers to know and stop processing transactions for targeted industries, or else they would face a hefty legal and financial burden.
In January, Wells Fargo & Co. and U.S. Bancorp announced they would halt their payday loan-like deposit advances following strict warnings from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.