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Federal loophole opens door to payday lending
Regions Bank first to return to North Carolina
Published Wednesday, October 3, 2012 2:24 pm
by Herbert L. White

Consumer protection advocates are railing against the return of payday loans to North Carolina.

Payday lending has returned to North Carolina with the introduction of Birmingham, Ala.-based Region Financial Corp.'s Ready Avance loans. Consumer advocates say payday loans' steep interest rates trap low-income borrowers in a cycle of debt.

Birmingham, Ala.-based Regions Financial Corp.’s Ready Advance loans has drawn the attention of a consumer coalition that allege the steep interest rates trap low-income borrowers in a cycle of debt. N.C. law bans payday loan shops or Internet services, but federal law allows banks to make loans based on laws in their home state.

Regions is the nation’s 15th-largest bank with $121.3 billion in assets as of June 30.

“We did succeed in eradicating payday loan shops, but banks, whether they’re national banks or state banks in general, they’re allowed to rely on the usury laws in effect in the state they’re incorporated,” said Ellen Harnick, senior policy counsel at the Durham-based Center for Responsible Lending. “Regions is incorporated in Alabama, which permits payday lending, unfortunately, in Alabama. No non-bank could get away with what Regions is doing.”

A call to Regions’ headquarters seeking comment was not returned, but according to the bank’s website, Ready Advance customers must pay back the loans – with a credit limit of $500 – within 10 days using a bank account with direct deposit. Regions charges $1 in fees for every $10 advanced and the entire balance is repaid upon the next direct deposit.

“If the amount of the direct deposit is not enough to repay 100% of the outstanding balance,” according to the bank’s website, “Regions will continue to repay the remaining outstanding balance from subsequent direct deposits until the outstanding balance is paid in full.”

If the loan isn’t repaid within five weeks, the outstanding balance is withdrawn from the checking account at a 21 percent annual rate, with potential overdraft fees applied.

“In at least one respect, the Regions version is even worse than their storefront cohorts,” said Charlene Crowell, CRL’s communications manager. “With control over the consumer’s bank account, Regions repays itself by directly taking the money owed – even if it triggers an overdraft. Earning payday loan interest and overdraft fees at the same time and from the same customer are nothing but double-dip lending.”

A second repayment option would allow borrowers to repay loans in installments at the 21 percent annual rate on the outstanding balance in addition to the 10 percent cash advance fee. “Your installment payment will be 50% of the outstanding balance or $100, whichever is greater,” according to Regions’ website.

An N.C. law passed in 2001 effectively shut down payday lenders, with the last of those businesses closing shop in 2006, but critics say Regions’ program skirts a federal loophole that allows banks to ignore state laws. A survey by Pew Charitable Trusts found African Americans are more than twice as likely to use payday loans compared to other ethnic groups. Nearly a quarter of payday borrowers are seniors whose primary source of income is Social Security.

“Payday loans are like a consumer needing a life preserver being thrown an anvil,” N.C. Attorney General Roy Cooper said. “It gets them on a debt treadmill oftentimes. We do not want North Carolina consumers subjected to payday loans.”

Consumer advocates are worried that Regions will soon have payday competition in North Carolina and are lobbying federal and state regulators to close the loophole. In addition to CRL, the N.C. NAACP and AFL-CIO are among the groups pushing to keep the state free of payday loans.

“Other banks, like Wells Fargo, Fifth Third and US Bank are making payday loans, but they’ve chosen wisely to respect our laws here in North Carolina,” Harnick said. “We don’t want payday loans here. We don’t care if banks, through this loophole, are allowed to make those loans. We don’t want them here.”


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