Friday, March 16, 2012

Bank Pay Day Loans: Commercial Banks in the Payday Loan Business


CitySquare is working with the Center for Responsible Lending to urge the Obama Administration to end the practice of payday loans by commercial banks.

Yes, that's right commercial banks!

Payday loans (also known as short-term loans), are loans here-to-fore associated with third party lenders like 'Cash America' or 'Advance America'. They charged exorbitant interest rates disguised as 'fees', which in Texas, allowed them to circumvent state constitution usury laws. These interest rates are as high as 300-500%...or more.

Now commercial banks have gotten into the act.

The following letter has been sent to the Consumer Financial Protection Bureau, the Federal Reserve, FDIC and the OCC to urge them to stop Wells Fargo, U.S. Bank, Fifth Third Bank and Regions Bank from masking the exploitation of financially desperate citizens as commerce.

You can read the entire letter and its signatories (including CitySquare), here.

The Honorable Ben S. Bernanke
Board of Governors, Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
The Honorable Richard Cordray
Consumer Financial Protection Bureau
1500 Pennsylvania Ave. NW
Washington, DC 20220
Mr. Martin Gruenberg
Acting Director
Federal Deposit Insurance Corporation
1776 F Street, NW
Washington, DC 20006
Mr. John Walsh
Acting Comptroller
Office of the Comptroller of the Currency
250 E Street, SW 
Washington, DC 20219
cc: The Honorable Sarah Bloom Raskin, The Honorable Elizabeth A. Duke, The Honorable Daniel K. Tarullo
Dear Chairman Bernanke, Director Cordray, Acting Chairman Gruenberg, and Acting Comptroller Walsh:
We write to urge the federal regulators of our nation’s banks to take immediate action to stop banks from making unaffordable, high-cost payday loans.
Wells Fargo, US Bank, Fifth Third, Regions, and Guaranty Bank’s deposit “advance” loans are structured just like loans from payday loan stores – carrying a high-cost combined with a short-term balloon repayment. Research has long shown that these loans trap borrowers in a cycle of expensive long-term debt, causing serious financial harm to borrowers, including increased likelihood of bankruptcy, paying credit card debts and other bills late, delayed medical care, and loss of basic banking privileges because of repeated overdrafts.
Further, payday lending by banks undermines state law in the states that have prohibited or imposed meaningful restrictions on payday loans in recent years, or that have never allowed payday loans to be part of their marketplace. It also undermines provisions of the Military Lending Act aimed at protecting service members from payday loans.
For customers with direct deposit of wages or public benefits, the banks will advance the pay in increments for a fee, ranging from $7.50 to $10 per $100 borrowed. The bank deposits the loan amount directly into the customer’s account and then repays itself the loan amount, plus the fee, directly from the customer’s next incoming direct deposit. If direct deposits are not sufficient to repay the loan within 35 days, the bank repays itself anyway, even if the repayment overdraws the consumer’s account, triggering more costs through overdraft fees.

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