According to American Banker, approximately 50 banks and third-party payment processors received subpoenas from the DOJ regarding electronic payments that banks process for online lenders suspected by the DOJ of fraudulently accessing their customers’ bank accounts. American Banker notes that the DOJ is taking the position that a 3 percent return rate on electronic transactions should raise a red flag for the bank, noting also that the return rate for all electronic payments was just under 1 percent in 2012 according to NACHA statistics. According to the article, the DOJ’s strategy is to reach a settlement with one of the banks and use that as a template in negotiations with other banks. Any such settlement would be expected to include the payment of fines by the bank.

The DOJ, FDIC and certain state bank regulators are attempting to hold banks liable for the activities of their customers, at least when processing electronic transactions for certain online lenders. It would appear that the DOJ’s position is that higher than average return rates are a sign of consumer fraud and that a bank that continues to process electronic payment transactions for such lenders is complicit in the hypothetical fraudulent contact. Concerns remain, however, that legitimate lending companies and their partners that provide underserved consumers with short-term credit options will be unnecessarily persecuted.

As first published in the NBPCA Government Update.