Making ‘Too Big To Fail’ Banks Help Poor Borrowers
Predatory lenders are folding fast in New York State, thanks to a savvy banking regulator who takes his duty to protect the public as seriously as his duties to the financial industry — and knows how to use the law to get quick action.
Nine of 35 predatory lenders closed their operations in the Empire State after banks cut them off from using the automated bank money transfer system to collect debts from borrowers’ bank accounts, the trade paper American Banker reported on Thursday.
It seems likely that more predatory outfits will fold their operations in the days ahead, not just in New York, but around the country, because the handful of “Too Big to Fail” banks operate in every state and so threatening them in New York effectively is a nationwide law enforcement strategy.
Amazingly, all it took was a single letter, showing that regulation and enforcement need not be costly to taxpayers.
For years, consumer groups like the National Consumer Law Center and the Center for Responsible Lending have fought to get official action against lenders who flout usury and other consumer protection laws.
The lenders have fought them all the way, often relying on obscure legal and regulatory rules that would require the offices of state consumer and law enforcement agencies – their budgets already stripped to the bone by anti-regulatory politicians – to commit resources they no longer have. So we got more words than real actions from many agencies that are supposed to enforce consumer protection laws.
For consumer advocates the biggest problem has been indolence by the regulators. Those who get paid to enforce the finance laws often work hard instead to curry favor with the regulated because that is the well-worn path to lucrative employment after leaving the public payroll.
The hero of the remarkably effective law enforcement strategy that caused so many payday lenders to abruptly quit in New York, with repercussions across the nation, is Benjamin Lawsky, a former federal prosecutor in Manhattan who is now superintendent of banking for the state.
Lawsky simply sent a letter August 5 explaining the law to licensed banks and to NACHA, the National Automated Clearinghouse Association. The clearinghouse is how banks move money around digitally. Predatory lenders use the system to reach into the checking accounts of customers, to withdraw money to repay loans.