Banks Bid Farewell to Payday Loans
Consumer Advocates Claim Victory After 2-Year Campaign for Reform
Charlene Crowell, Special to The Informer | 1/24/2014, 3:06 p.m.
More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect on Jan. 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank. Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.
Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.
Research by the Center for Responsible Lending (CRL) has found that the typical bank payday borrower:
· Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent;
· Has a one in four chance of also being a Social Security recipient;
· Is twice more likely to incur overdraft fees than bank customers as a whole; and
· Often remains in debt for six months of a year.
Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years. Here are a few examples of that consumer activism.
In early 2012, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns. A year later in 2013, over 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending. CRL in coordination with CREDO delivered a petition with 150,000 signatures in an appeal to federal regulators.
By April 2013, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed regulatory guidance on bank payday loan criteria. Weeks later amid still-growing consumer concerns, Florida’s U.S. Senator Bill Nelson and Sen. Elizabeth Warren of Massachusetts in May 2013 sent a joint letter to the Office of the Comptroller of the Currency (OCC).
“As Chairman and member of the Senate Special Committee on Aging, we take very seriously our responsibilities to seniors and elderly consumers who expect and deserve fair and transparent financial services,” said the Senators. “Social Security was created to provide seniors with financial support to help them cover basic living expenses not for banks seeking new sources of revenue by exploiting retirees with limited means. Therefore it is critical that banks be discouraged from using government benefits as proof of income, and we would hope such a provision would be included in the final guidance.”
By November 2013, FDIC and OCC finalized regulations and advised banks that a borrower’s ability to repay a loan must be considered when issuing these loans.
In December 2013, the Leadership Conference on Civil and Human Rights (LCCR), representing more than 200 diverse national organizations unanimously adopted a resolution urging states, Congress and federal agencies to increase regulatory oversight and enforcement of all payday lenders.