Online payday lenders are creating new hazards for borrowers, leading to large overdraft fees and even loss of access to checking accounts, federal regulators claimed Wednesday.

Online payday lenders often have direct access to borrowers' checking accounts for deposits and payments. When borrowers don't have sufficient funds in their accounts to pay the lenders, repeated withdrawal attempts made by lenders result in multiple non-sufficient funds charges averaging $185, the Consumer Financial Protection Bureau said.

(snip) "We found that over the study period, 36% of accounts with a failed debit attempt from an online lender ended up being closed by the bank or credit union," Cordray said. "Getting booted from the banking system can have far-reaching repercussions for consumers, leading to a downward spiral that costs them even more money and their precious time. It can be hard to get a new account at another bank. It can mean having to use expensive check-cashing and bill-paying services to cash their paychecks or their benefits checks or to pay their bills, services they used to take for granted."

Repeated debit attempts by online lenders usually fail — 70% of second attempts don't result in any collection, and further attempts fail even more — but there is some logic to why they try. In some cases, borrowers may not have the entire amount owned available in a checking account but might have part of it. A lender may first try to collect $300 and fail, but then might split that request up into three $100 debits and succeed in getting some of the money it's owed. The cost to lenders for additional requests is negligible, but each failed debit costs consumers $34, on average. The lender may apply additional fees as well.

More: http://finance.yahoo.com/news/payday-loans-shutting-down-americans-110000192.html