SACRAMENTO, Calif. (4/24/15)--California regulators recently introduced a proposal aimed to curb the use of Internet-based payday lending services by prohibiting lenders from accessing their customers' online bank accounts.
Customers often secure payday loans from online lenders by handing over access to their bank accounts, a measure the lenders require because they worry their customers may blow off the loans (American Banker April 20).
But the proposed changes by the California Department of Business Oversight would ban the practice, and require that loans only be secured through a paper check.
"It may not necessarily be a bad thing to reduce the amount of payday lending business that's conducted online," said Thomas Dresslar, spokesperson for the business oversight department, adding, "The more the scope of payment instruments expands beyond paper, the more dangerous the market becomes for consumers."
The proposal could cripple the online payday lending industry in California, American Banker reported, while posing less of a threat to traditional financial institutions such as credit unions and banks.
Still, the California and Nevada Credit Union Leagues plans to monitor the proposed changes as the process moves forward.
"This proposal applies to payday lenders and is on our watch list right now," Sharon Lindeman, league vice president of regulatory advocacy, told News Now. "We will be studying the proposal as it evolves."
Added Rodney Wilson, league senior legislative advocate: "We are monitoring all state issues that impact credit unions and the financial services marketplace, including this issue. California credit unions offer healthy competition in the financial services marketplace to ensure consumers have access to alternatives that are affordable, sustainable and that comply with state laws and regulations."