With many states banning the predatory practice, payday lenders—with the help of large banks—have turned to the Internet to continue gouging consumers in need of money.

To date, 15 states have outlawed payday loans, which can come with astronomical interest rates (some as high as 500%). The restrictions have led the lenders to set up online operations in other states or overseas locations.

But the new Internet-based schemes require assistance from big banks, and JPMorgan Chase, Bank of America and Wells Fargo have been happy to help. The banks enable the lenders to withdraw payments automatically from borrowers’ bank accounts. This includes those in states that have banned the loans. Often these withdrawals lead to quick profits for the banks thanks to overdraft and other fees. In fact, a report by Pew Charitable Trusts found that 27% of payday loan borrowers ended up with overdraft fees.

“In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals,” according to Jessica Silver-Greenberg of The New York Times.

In 2011, 35% of payday loans were made online, and they totaled $13 billion.

The banks’ role in payday loan operations has drawn scrutiny from the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau. Also, the head of New York State’s Department of Financial Services is investigating how banks help online lenders avoid New York law and make loans to residents of the state, where interest rates are capped at 25%. Similar investigations are going on in Illinois, Minnesota and Arkansas.

-Noel Brinkerhoff

To Learn More:

Major Banks Aid in Payday Loans Banned by States (by Jessica Silver-Greenberg, New York Times)

Wells Fargo, U.S. Bank Weasel into Payday Loan Business (by Noel Brinkerhoff, AllGov)

The Payday Lender Senator: Corker of Tennessee (by Noel Brinkerhoff, AllGov)