The U.S. Department of Justice is going after online lenders and other questionable financial services by targeting the banks that service short-term, high-interest loans. Last night, The Wall Street Journal posted a story about the investigation:
“The government has issued subpoenas to banks and other companies that handle payments for an array of financial offerings, ramping up an investigation that has been under way for several months, according to Justice Department officials and other people familiar with the matter.
“It’s a shift in strategy: Rather than just targeting individual firms, the government is now going after the infrastructure that enables companies to withdraw money from people’s bank accounts.
“The volume of online payday lending—a term for smaller, short-term loans at high interest rates—grew to $18.6 billion in 2012, up 10% from the previous year, accounting for nearly 40% of industrywide payday-loan volume, according to investment bank Stephens Inc.
“Regulators are also trying tamp down phone and online offers in which marketers try to get people to pay for services that they don’t intend to deliver. These can include offerings to erase debt or offerings of work-from-home programs that don’t lead to jobs, officials say.
Online lenders and others are complaining that the government is trying to stifle a legitimate service that serves low-income people with financial emergencies. Caught up in the controversy are Indian tribes that operate lending programs outside of state regulations.
According to the Journal, these types of loans come with ridiculously high interest rates, some as high as 700%. 15 states and the District of Columbia ban these types of loans with interest-rate caps.
The Department of Justice is working closely with the Federal Trade Commission to target alleged scammers and online lending fraud.
Read the complete story here.