Bank of America Corp has become the first big bank to agree to use a New York regulator’s database to ensure it does not process illegal payments from payday lenders to state residents, Governor Andrew Cuomo said on Monday.
New York outlaws payday lending, or short-term consumer loans that mature the day the borrower receives his or her paycheck. New York’s Department of Financial Services began clamping down on such lenders in 2013 because the interest rates they charge can be high enough to be considered predatory.
Some lenders have tried to sidestep the prohibition by offering the loans over the Internet and using electronic payment and debit networks to collect on them.
To clamp down on this practice, the Department of Financial Services developed a database that identifies companies that may run afoul of the state’s ban on payday lending.
Bank of America plans to use this database to determine whether its merchant customers are using their bank accounts to make or collect on payday loans.