Payday loans are short-term loans with very high interest rates. People who need cash right away often go to payday lenders in storefronts and on the Internet. Fifteen states have banned payday loans. Other states have laws that limit payday loan interest rates.
Payday lenders cannot operate without the help of some of the United States’ biggest banks, such as JPMorgan Chase, Bank of America and Wells Fargo. Banks control the accounts of borrowers. When payday lenders want to collect monthly cash and interest payments on loans, big banks withdraw funds from borrowers’ accounts.
Many borrowers cannot cover the cost of loan payments plus high interest payments. When borrowers cannot make payments, the banks charge overdraft fees to the account holders. The banks make millions of dollars from these fees.
Some of the stories told by borrowers are very alarming. They say they tried to close their bank accounts and the banks simply do not close them. In one case, six Internet lenders tried to take money out of a woman’s account 55 times over two months. The bank, JPMorgan Chase, charged her $1,523 in fees for insufficient funds, overdrafts and service fees.
JPMorgan Chase has now said it would review its relationship with payday loan lenders, and would make changes.
The whole system of high interest rates and fees is frequently based on the Internet and offshore accounts operating in places like Granada, the West Indies and Belize. They use the Internet to reach borrowers.
Some Internet and offshore accounts’ interest rates are over 500 percent annually. States that ban payday loans cannot control what happens on the Internet. There are many layers of ownership that are hard to identify.