MasterCard and Visa have reached an agreement with New York state’s main banking regulator to halt illegal payday loans through debit card transactions.
Both card companies will work with acquiring financial organizations to ensure that they are not processing illegal debit card transactions on behalf of payday lenders.
Furthermore, the The New York Department of Financial Services (DFS) will provide Visa and MasterCard with information pertaining to the payday lenders that are using debit cards to avoid New York laws to recover loans.
This information will comprise the names of the lenders, URLs, and any other identifying information that may be useful.
Department of Financial Services superintendent Benjamin Lawsky said "Whenever online payday lenders try new schemes to flout our laws and exploit New York consumers, we will take strong action to head them off at the pass.
"Visa and MasterCard responded swiftly when we contacted them about this issue and have set a strong example today for their entire industry."
Apart from this, DFS has dispatched 20 cease-and-desists letters to payday lenders accused of illegally promoting, making, or collecting on payday loans to New York consumers. Of the 20, nearly 12 appear to be using the debit card tactic.