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State & National

Banks opt out of payday lending
Wells Fargo among four to drop programs
Published Sunday, January 19, 2014 1:12 pm
by Herbert L. White

More banks are getting out of the payday loan business.

Regions Bank, Wells Fargo, US Bank and Fifth Third announced last week that they will discontinue  payday loan products, which had interest rates that went as high as 300 percent a year. The announcements follow regulatory guidance finalized last year by the Office of the Comptroller of the Currency, which supervises Wells Fargo and US Bank, and by the Federal Deposit Insurance Corp. 

The federal guidelines advises banks under those agencies’ supervision to prohibit making small-dollar loans their customers cannot afford to repay. The Federal Reserve, which supervises Fifth Third, also issued a supervisory statement last year emphasizing the significant consumer risks bank payday lending poses.

Wells Fargo and Charlotte-based Bank of America are the largest financiers of payday lenders. BofA is still investing in the practice.

Regions Bank ended its payday loan service in North Carolina last year, but a bill filed by N.C. Sen. Jerry Tillman (R-Randolph) would’ve legalized loans of 390 percent interest. Lenders could make loans of as much as $500 for as long as 35 days and could charge fees of as much as 15 percent to cover operational costs, such as holding the check or keeping records. The bill was described as “legalized loan-sharking at its worse,” by Al Ripley of the NC Justice Center, a progressive think tank. 

The bill has been referred to the Senate Commerce Committee.

Cash advance services in North Carolina were forbidden by a law passed in 2001 after pressure from consumer groups charged payday loans were predatory against low-income customers who lacked access to mainline banking services. However, federal law made it possible for out of state banks to provide the service based on their state’s charter.

Earlier this year, Birmingham, Ala.-based Regions, also supervised by the Federal Reserve, was the first to announce it will discontinue its payday loan product.

The four banks were the largest of a handful of banks making payday loans. Banks have touted the loans as a quick fix to a financial shortfall, but consumer activists contend  they trap low-income customers in a cycle of high-interest debt. A 2013 Consumer Financial Protection Bureau report found that banks’ payday loans keep customers in triple-digit debt during an average of seven months out of the year.



In a stunning abuse of regulatory authority, federal financial regulators forced 4 banks to cease offering short-term, small-dollar credit to their depositors. Ironically, this action forces the banks to violate the essence of the Community Reinvestment Act which mandates that banks serve the credit needs of the communities where they source deposits. Although these regulators have acknowledged consumers' need for small-dollar credit, they persecuted these banks solely because they didn't like the "flavor" of short-term credit they offered. Meanwhile, these same regulators continue to ignore the banking industry's most abusive and predatory, short-term credit product -- Overdrafts.
Posted on January 21, 2014
Wells Fargo should be overlooked by the federal government as the recent article from la times posted of employees faced with bad practices
Posted on January 19, 2014

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