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Class Claims Banks Abet Usurious Lenders

PHILADELPHIA (CN) - Harris Bank uses its multistate branches to help usurious payday lenders skirt state laws, a racketeering class action claims in Federal Court.

Lead plaintiff Patricia Booth sued BMO Harris Bank, First International Bank & Trust, and North American Banking Co.

These banks act as middlemen for payday lenders that use the Automated Clearing House to originate unlawful loan transactions, according to the 64-page lawsuit.

"Payday loans - small, closed-end loans due in full on the borrower's next 'payday' - have a long and sordid history," the complaint states. "For years, unscrupulous lenders have taken advantage of desperate borrowers who are unable to obtain funds anywhere else in order to make ends meet, by offering loans at usurious and

unconscionable rates. Payday lenders operate on the shadowy fringe of the

mainstream financial system.

"At least 13 states across the nation have either banned payday loans directly or effectively banned them by operation of an interest rate cap. Payday loans are illegal in Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Vermont, and West Virginia (the 'banned states'), and the District of Columbia."

Payday lenders, purportedly based offshore or on Indian reservations, use the Internet to defy state laws and charge residents of those 13 states, and others, interest rates of 500 percent and more, according to the lawsuit.

The defendant banks participate in the scheme by entering payday loan transactions into the Automated Clearing House electronic payment system, Booth says.

She claims it would be impossible for the usurious lenders to make these unlawful loan transactions without assistance from the defendants.

"Defendants know that they are crediting and debiting consumers' accounts for unlawful purposes because they know they are acting on behalf of Out-Of-State Payday Lenders and that the entries they originate on the ACH Network on behalf of such Out-Of-State Payday Lenders will credit or debit funds in states in which the Out-Of-State Payday Lenders' loans are illegal and unenforceable," the complaint states. "Defendants are required by federal banking regulations and the rules of the ACH Network to know the identities of the entities for which they originate transactions and to assure themselves that such transactions do not violate state or federal law.

"Defendants' illegal schemes with Out-Of-State Payday Lenders have victimized Plaintiff and millions of others. Unless enjoined, defendants will continue to engage in these schemes and cause substantial injury to consumers."

Booth seeks class certification, an injunction and damages for RICO violations, unjust enrichment and aiding and abetting violations of Pennsylvania laws.

Her lead counsel is James Shah with Shepherd Finkleman Miller & Shah, of Media, Pa.

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