New York is starting new efforts to halt the processing of illegal payday loans through debit card transactions.

MasterCard and Visa have agreed in discussions with the state Department of Financial Services to take a series of steps to help stop this illegal activity over their debit card networks. An ongoing, extensive DFS investigation has uncovered that – as regulatory pressure mounts on online payday lenders’ abuse of the Automated Clearing House bank payments network – some lenders are instead using debit card transactions as an end run around that system to illegally deduct funds from New Yorkers’ bank accounts.

Benjamin M. Lawsky, state superintendent of financial services, also sent cease-and-desist letters to 20 additional companies that the department’s ongoing investigation has identified as illegally promoting, making or collecting on payday loans to New York consumers – 12 of which appear to be using the new debit card tactic. The state has now sent cease and desist letters to 55 online payday loan companies. Previously, in August 2013, the Department of Financial Services sent cease-and-desist letters to 35 online payday lenders offering illegal loans to New Yorkers – the majority of which have stopped lending in New York following those letters.

“My administration will work tirelessly to stay one step ahead of online payday lenders that try to evade state law and trap consumers in a vicious cycle of debt,” said Gov. Andrew Cuomo. “By working with us to root out this illegal conduct, Visa and MasterCard have stepped up to the plate and shown how private companies can work alongside state government to protect vulnerable New Yorkers. This collaboration, along with the latest cease and desist letters from the Department of Financial Services, should serve to put all payday lenders on notice that illegal activity will not be tolerated in the state of New York.”

During its more than year-long investigation, the Department of Financial Services has taken a series of steps to help limit access to the Automated Clearing House electronic bank payments network for online payday lenders who are illegally deducting funds from New Yorkers’ accounts. However, Department of Financial Services officials recently identified a new trend among some online payday lenders in processing payments from loan borrowers. These lenders have begun notifying borrowers on their websites that they are no longer using the Automated Clearing House network to process payments, and are now requiring borrowers to provide debit card information so the lenders can automatically deduct loan payments from borrowers’ accounts.

In recent discussions with the Department of Financial Services, MasterCard and Visa have committed to taking a series of steps to help halt the processing of illegal payday loans through their debit networks before this becomes a widespread problem. These steps include the following:

MasterCard and Visa will work with acquiring financial institutions to ensure that they are not processing illegal debit card transactions on behalf of payday lenders. On an ongoing basis, DFS will provide MasterCard and Visa with information concerning payday lenders that may be either lending into New York illegally or using debit networks to collect on illegal loans from New Yorkers. This information will include the names of the lenders, URLs, and any other identifying information that may be useful. MasterCard and Visa will investigate the matter and take appropriate action with the payday lender’s acquiring financial institution to cease MasterCard and Visa activity with that lender.

MasterCard and Visa will alert all acquiring banks of the risks of doing business with payday lenders that may be operating in violation of state law. MasterCard and Visa will send alerts to all the acquiring financial institutions in their debit networks about illegal payday lending and New York laws prohibiting payday lending. The alert will also remind acquiring financial institutions of MasterCard and Visa rules that apply concerning the processing of illegal transactions by merchants.

Lawsky today sent cease-and-desist letters to the following 20 companies that DFS’s investigation has identified as promoting, making, or collecting on illegal payday loans to New Yorkers. The first 12 companies listed appear based on DFS’s investigation to be requiring debit card information to collect on illegal payday loans. They are:

AALM Consulting Services, Ltd. d/b/a MultiLoanSource

Action Payday, LLC

Coral Keys, Ltd.

Fast eFunds

First American Capital Resources ONE, LLC

Iggy Group, LLC d/b/a Iggy Loans

Joro Resources, LLC d/b/a Idealgelt

MB Marketing, LLC d/b/a My Next Day Cash

Rapital Capital

Red Leaf Ventures, LLC d/b/a Red Leaf Lending

Sierra Lending, LLC

Uncle Warbucks

VIP PDL Services d/b/a VIP Loan Shop

Fast Next Day Cash (aka Vista B Loans)

First America Credit

My Web Funds

Net Cash 123

Platinum Cash Link

CWB Services, LLC d/b/a Vandelier Group, LLC; Shoreline Online, LLC; Cutter Group, LLC

Hydra Financial Limited Fund d/b/a Hydra Fund II

Payday lending is illegal in New York under both civil and criminal usury statutes. In some cases, however, lenders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, hoping to avoid prosecution. Nonetheless, Internet payday lending is just as unlawful as payday lending made in person in New York.