Bank of America Dodges Payday Loan Class Action

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A class action lawsuit filed against Bank of America, alleging that the bank was completing debits on its customers’ bank accounts from payday lenders allegedly knowing that the lenders were making payday loans that were unlawful, was tossed by a federal judge who says that the lead plaintiff didn’t state a claim.

Plaintiff Jeanette Costoso filed her class action lawsuit against Bank of America in July 2014, alleging that the bank violated New York banking law by processing the payday loans what were issued to her.

Payday loans, as defined by Costoso are “short term high interest loans for small amounts of money that typically come due in a matter of days or weeks and require the borrower to provide the payday lender with access to their deposit account for repayment.”

U.S. District Judge Arthur D. Spatt said that Bank of America did not have the sole responsibility to block or recredit payments that were made in connection with Costoso’s account, which she claims were illegal.

After New York state officials told over 100 banks to block the activities of online lenders, Bank of America knew about the payday loan activity by lenders was illegal when it was processing activity in customers’ deposit accounts, Costoso alleged in the class action lawsuit.

However, according to Judge Spatt, even though Costoso claims that payday loan transactions by payday lenders that were processed by Bank of America, she did not sufficiently demonstrate that the allegedly illegal activity made her transactions invalid.

“It is true that New York’s high court has explained that ‘from time immemorial, [governments have sought to] protect desperately poor people from the consequences of their own desperation,'” Judge Spatt wrote about the Bank of America payday loan class action lawsuit.

“However, it does not follow that, on these allegations, the plaintiff has a cause of action against [receiving depository financial institutions] such as the defendant, either under New York statutory or common law, based on the alleged failure of the defendant to combat the practices of payday lenders,” the New York federal judge explained.

The Consumer Financial Protection Bureau is currently in the process of coming up with rules to help protect those who borrow money from payday loan lenders, as they currently have very little recourse.

According to the Bank of America payday loan class action lawsuit, the New York State Department of Financial Services, under which banks and other financial organizations in New York are overseen, mailed letters to Bank of America and other banks, which operate in The Empire State, naming 35 payday loan lenders, which may be using banks to engage in illegal activity.

However, Judge Spatt said in his ruling that Bank of America did not breach any express contract when processing the debits linked to Costoso’s account, which she had authorized the payday lenders to make, and therefore, she will not be able to sue the bank for breach of the covenant of good faith  and fair dealing.

Judge Spatt also dismissed the unconscionability charges and the alleged violations of the general business law.

Costoso is represented by Darren T. Kaplan of Darren Kaplan Law Firm PC, Hassan Zavareei and Jeffrey D. Kaliel of Tycko & Zavareei LLP, Jason H. Alperstein of Kopelowitz Ostrow PA, Gosselin Sathya of Hausfeld LLP and Stephen N. Six of Stueve Siegel Hanson LLP.

Bank of America is represented by Maria B. Earley, James A. Huizinga and Benjamin R. Nagin of Sidley Austin LLP.

The Bank of America Payday Loan Class Action Lawsuit is Jeanette Costoso v. Bank of America NA, Case No. 2:14-cv-04100, in the U.S. District Court for the Eastern District of New York.