Babaamaajimowinan (Telling of news in different places)

FEDS ASSURE BANKS THEY CAN KEEP WORKING WITH ONLINE LENDERS

Online lenders, rocked since a March announcement by the U.S. Financial Fraud Enforcement Task Force that it would focus on web-based lenders and the Automated Clearing Houses that process their loans, gained much needed stability this week as regulators appeared to soften their position.

The Online Lenders Alliance gained assurances from the Federal Deposit Insurance Corp. (FDIC) that the agency is not attempting to interfere with the business of online short-term lending or the companies that process their transactions so long as they operate in compliance with existing regulations.

One Tennessee lender laid off 300 workers after losing support from the Automated Clearing House that had served it. An association of 15 tribally owned lenders operating under the Native American Financial Services Trade Association (NAFSA) has led the opposition to federal regulation claiming that consumers need short term loans, their tribes need the revenue for essential services, and federal regulators were infringing on their sovereign immunity.

Lisa McGreevy, president of the Online Lenders Alliance, told members that she met with officials from the FDIC last week to discuss the fact that a federal investigation into the industry misled some banks to believe they were under orders to stop processing such loans.

In a letter to Mark Pearce, director of consumer protection at the FDIC, McGreevy thanked Pearce for confirming that banks and online lenders are not prohibited from working together.

“We are also gratified to learn that the FDIC does not prohibit banks from processing payment transactions for online lenders, and has not issued any formal or informal guidance – verbally or in writing – that would lead banks to believe that they should not provide banking and payments services to the online lending industry,” she wrote.

And on August 26, Jane Larimer, executive vice president and general counsel of NACHA, the Electronic Payments Association, wrote McGreevy: “Our inquiry should not be taken as a direction to [ACH processor] to cease processing payments for on-line lenders engaged in legal lending activity.”

Online short-term lending companies as well as the banks and payment processors who work with them have sought assurances from federal regulators since learning that the FDIC and the U.S. Department of Justice had launched an investigation of the industry. That apparently spooked some banks and payment processors to believe they were being told by federal regulators they had to stop doing business with online lenders.

Among the owners of online lending companies are at least 15 federally-recognized Native American tribes. The tribes have further argued that the federal government does not have the authority to regulate legal businesses that are operated by tribes because they are sovereign entities.

Banks, lenders, and trade associations have been trying to clear up the confusion since the investigation came to light. Several members of the U.S. House of Representatives have accused the FDIC and Department of Justice of overstepping their authority and of damaging legitimate businesses that Congress had deemed an important safety net for some consumers. Some 31 members of Congress signed a letter opposing the federal inquiry while individual members followed up with comments through the course of the week.

“The FDIC doesn’t have the right to put industries out of business because they don’t like them. It’s not the proper role of the government to eliminate choices for consumers, especially when Congress has opposed and rejected the elimination of the valuable industry,” said Rep. Trey Radel, R-Fla., in a statement.

Rep. David Schweikert, R-Ariz., pointed out that: “While oversight is important, this unilateral move by the FDIC will shut many Americans out of regular commerce. Washington shouldn’t be making it even more difficult for those who choose to use non-traditional banking methods.”

The FDIC has reported that some 65 million Americans have credit access problems and lack sufficient income to survive short-term emergencies. Congress has supported short-term lending, also called payday lending, in an effort to give low-income workers access to loans they cannot get from traditional banks.

NEW YORK’s ATTEMPTED CRACKDOWN

There has been a similar effort on the part of regulators in the state of New York to crack down on online lenders. Benjamin Lawsky, the state’s superintendent of financial services, ordered 35 online lenders, including at least 15 owned by tribes, to cease offering loans in New York. He also sent out a letter to banks requesting they help to “choke off” lenders from the automated clearing house system.

Although there has been no acknowledgement of a coordinated efforts between federal regulators and Lawsky’s New York state crackdown, Lawsky has followed the strategy of attacking Automated Clearing Houses, first outlined by federal regulators in March.

His efforts quickly drew a lawsuit filed in U.S. District court by two impacted tribes. The suit seeks injunctive relief prohibiting him from taking enforcement action. A similar lawsuit was lost in Colorado last year when a judge there ruled that Colorado had no regulatory authority over a sovereign tribe.

NACHA, the group that oversees the automated clearing house network also received a letter from Lawsky which added to confusion within the industry and scared off some banks and loan processors from working with online lenders and leading to the Tennessee layoffs.

NACHA has since advised its members, which includes Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp., that they can continue to do business with online lenders who are operating lawfully.

 

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