In recent months, a number of class actions have been filed across the country against large banks in an attempt to hold those banks accountable for debiting consumers’ deposit accounts for payments to certain companies offering short-term, small dollar loans – often called “payday loans” – online. In all of the lawsuits, the plaintiffs allege that, though they initially authorized the ACH transactions, the banks nonetheless improperly processed these debits because the National Automated Clearing House Association (NACHA) Operating Rules governing ACH transactions required the borrowers’ banks to carry out due diligence and monitoring activity, and to avoid processing debits from entities known to engage in unlawful activities. The suits claim the bank defendants knew the transactions were illegal (in some cases, plaintiffs make this claim based on a letter that the New York Department of Financial Institutions sent to 117 banks in August 2013 naming 35 allegedly illegal payday lenders in connection with its own investigation of payday lending. The letter also urged banks to block online lenders from using the ACH network.).
The cases, including at least ten suits against BMO Harris Bank alone, seek relief under a variety of theories including:
- breach of contract (i.e., the borrower’s deposit agreement with the bank);
- unjust enrichment;
- breach of good faith and fair dealing;
- violation of state unfair competition law and/or consumer protection statutes;
- violation of state payday loan laws; and,
- violation of state and/or federal Racketeer Influenced and Corrupt Organization (RICO) laws.
To date, however, plaintiffs have found little success in these lawsuits, with most cases being ordered to arbitration or outright dismissed because plaintiffs failed to state a claim. The latter result makes particular sense here since the borrowers’ banks ordinarily should not be liable for accepting debits the plaintiffs themselves authorized. LenderLaw Watch will continue to monitor developments of note and bring readers updates in these cases.