Feds Muzzle Illicit Payday Loans

Staten Island commercial bank delineates examiners' findings


STATEN ISLAND, N.Y. – Payday loans that subject borrowers to deceit and harassment have drawn federal action describing them as illegal.

Victory State Bank, Staten Island's business bank, cites a recent report by the Consumer Financial Protection Bureau (CFPB) that described problems with questionable payday-lending practices.

These types of loans are part of a larger scope of federal supervision over nonbank financial entities involving also debt collection and consumer reporting.

“For the first time at the federal level, nonbank financial institutions are subject to supervisory oversight that holds them accountable for how they treat consumers,” CFPB Director Richard Cordray said in a statement.

In the nonbank markets highlighted in CFPB’s report, examiners found that many companies had systemic flaws in their compliance management systems, such as consistently failing to have a system in place to track and resolve consumer complaints. 

Specifically with payday loans, several problems were uncovered.


These types of loans are frequently a way for consumers to bridge a cash-flow shortage between paychecks or the receipt of other income. Loans often have small-dollar amounts, require borrowers to repay quickly, and ask that a borrower give lenders access to repayment through a claim on the borrower’s deposit account.

When lenders called borrowers to collect debt, they sometimes threatened to take legal actions they did not actually intend to pursue. Examiners cited these threats as unlawful deceptive practices.

Other lenders threatened to impose additional fees or to debit borrowers’ accounts at any time, when this was not allowed by their contract. Examiners also found lenders lied about non-existent promotions to induce borrowers to call back about their debt.


CFPB examiners also found that payday lenders called borrowers multiple times per day. When lenders failed to track accurately how many times they had called a borrower, it increased the risk of a borrower receiving excessive calls.

Examiners also found that employees of payday lenders would sometimes visit borrowers’ workplaces in attempts to collect debt. Such practices by lenders can violate the Dodd-Frank Act’s prohibition on unfair practices.

Many payday lenders hire third parties to collect their debts. The CFPB expects payday lenders – and all institutions subject to its supervision – to oversee their service providers to ensure they are complying with federal law.

But examiners found that third-party debt collectors misled borrowers in a variety of ways, including falsely claiming to be an attorney and making false threats of criminal prosecution. Third-party collectors also harassed borrowers by calling at unusual times.



About Victory State Bank

VSB Bancorp, Inc. (OTCQB: VSBN) is the one-bank holding company for Victory State Bank. As Staten Island, N.Y.’s only community-based commercial bank, Victory State Bank operates five full-service locations on the Island: The main office in the community of Great Kills, and branches in the communities of West Brighton, St. George, Dongan Hills and Rosebank.  For additional information, Victory State Bank may be reached at 718-979-1100 or visited online http://www.victorystatebank.com.

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