Major U.S. banks have decided to stop providing data about bank customers and their accounts to payday lenders. The banking industry has been under pressure from U.S. regulators to stop facilitating the activities of predatory payday lenders. Up until this recent decision, payday lenders could pay to get access to a database of bank account information used to evaluate potential borrowers.
Early Warning Services LLC, which is co-owned by five large banks including Bank of America, JPMorgan, Wells Fargo, is the name of the firm that had been providing information about bank customer accounts to payday lenders for use in loan underwriting.
A Bloomberg report notes that the FDIC and other federal regulators have been pressuring banks to stop dealing with payday lenders in campaign dubbed “Operation Choke Point.”
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Statement from Early Warning Services
“We’ve been discontinuing service [to payday lenders] one by one,” Kyle Thomas, chief of marketing and sales at Scottsdale, Arizona-based Early Warning, noted in a telephone interview with Bloomberg. “The way we’re going through it reflects both the wishes of our data contributors as well as various regulators.”
More on Early Warning Service’s cut off of payday lenders
Of note, payday lenders don’t purchase the data directly. The firms get access through alternative credit bureaus such as Clarity Services and FactorTrust, which maintain databases on borrowers who use short-term loans.
Early Warning has been telling these middlemen firms that it does not want to be involved with lenders that charge high interest rates so it unintentionally facilitate fraud or other illegal activity, according to a 2014 letter obtained by Bloomberg News. The company noted in the letter that regulations are too complex, and it cannot confirm that short-term lenders are actually following the law.
“The use of their data is very strictly limited,” commented Julie Conroy, a former Early Warning employee who’s now research director at Aite Group LLC. “If there is a perception that there is reputational risk or potential harm to consumers that could come from the use of that data, the banks tend to be very sensitive about that.”