You may not have a firm understanding of ACH definition, but payday loan vendors sure do. They use the Automated Clearing House network to process loan payments that they make to your account as well as automatic withdrawals that they make from your bank. Many banks are willing participants in the payday loan process, allowing ACH withdrawals by payday lenders even in states where payday loans are prohibited.
ACH Networks, Banks and Payday Lenders:
The overall key to ACH definition is the ACH network, which moves $39 trillion (that’s with a “t”) through 22 billion financial transactions annually, according to the National Automated Clearing House Association (NACHA) website. The ACH network allows funds to be transferred from one financial institution to another through electronic transactions. For instance, direct deposits and debit card payments each use the ACH network to complete their transactions.
Payday lenders also use the ACH network, first to deposit funds into your account or onto a debit card; later to make withdrawals for your payments. For payday lenders, banks hold the key to ACH definition. Without the cooperation of banks, online payday lenders would lose a significant portion of their business because they would have no way to process loans or collect payments.
Banks stand to make big money when account holders do not have the funds to pay off their payday loans, according to The New York Times. Banks make money when they process returns for customers claiming that unauthorized withdrawals were made from their accounts. Banks also make money from overdraft fees generated when payday lenders make unsuccessful attempts to withdraw payments from borrowers’ accounts.
Operation Choke Point:
For the Consumer Finance Protection Bureau, ACH definition related to payday loans is centered in what it views as abusive financial practices by lenders and banks alike. The CFPB claims that banks enable payday lenders to pursue abusive lending practices in states even where payday loans are prohibited by processing ACH transactions for them. The CFPB initiated Operation Choke Point was to figuratively cut off the air to illegal payday lenders by cracking down on banks of all sizes, including huge national banks like JP Morgan Chase.
Positive Aspects of the ACH Network:
ACH withdrawals are not always bad. You may have set up automatic ACH payments for your car note or cell phone bill to make sure your payments are posted on time. LoanNow also uses automatic ACH payments to help borrowers maintain on-time payments that can help them qualify for lower interest rates on future LoanNow loans. That’s definitely a financially positive development!