Letter to Bank Regulators: Stop Bank Payday Lending

Some 250 advocates urged four federal regulators to get rid of the predatory training of bank payday lending on February 22, 2012. The CFPB, OCC, FDIC and Federal Reserve Board can and really should stop Wells Fargo, United States Bank, Fifth Third Bank and areas Bank from trapping their clients in long-lasting financial obligation at 400per cent yearly interest.

The Honorable Richard Cordray Director Customer Financial Protection Bureau 1500 Pennsylvania Ave. NW Washington, DC 20220

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 banking institutions to simply simply simply take immediate action to stop banking institutions from making unaffordable, high-cost payday advances.

Wells Fargo, United States Bank, Fifth Third, areas, and Guaranty Bank’s deposit “advance” loans are organized similar to loans from pay day loan stores – carrying a high-cost along with a short-term balloon payment. Studies have long shown why these loans trap borrowers in a period of costly debt that is long-term causing severe monetary injury to borrowers, including increased possibility of bankruptcy, having to pay bank card debts along with other bills late, delayed health care bills, and loss in fundamental banking privileges as a result of duplicated overdrafts.

Further, payday financing by banking institutions undermines state legislation in the us which have prohibited or imposed significant limitations on payday advances in the last few years, or which have never permitted payday advances to engage in their market. It undermines conditions for the Military Lending Act targeted at protecting solution users from pay day loans.

The banks will advance the pay in increments for a fee, ranging from $7.50 to $10 per $100 borrowed for customers with direct deposit of wages or public benefits. The lender deposits the loan quantity straight into the customer’s account then repays it self the mortgage quantity, as well as the cost, straight through the customer’s next incoming direct deposit. The bank repays itself anyway, even if the repayment overdraws the consumer’s account, triggering more costs through overdraft fees if direct deposits are not sufficient to repay the loan within 35 days.

Non-bank payday borrowers routinely end up struggling to repay the mortgage in complete plus satisfy their costs when it comes to month that is next taking right out another cash advance. A recently available analysis of real account that is checking by the Center for Responsible Lending [i] discovers exactly the same does work with bank pay day loans:

Bank payday advances typically carry a annual portion price (APR) of 365 % on the basis of the typical loan term of ten days;[ ii]

On average, bank payday borrowers come in debt for 175 times per [ iii year]

Numerous borrowers take out ten, 20, as well as 30 or maybe more bank pay day loans in a year;[ iv]

Numerous bank payday borrowers are Social protection recipients, therefore the banking institutions take significant portions of these checks that are monthly for payment of bank pay day loans.[v]

These findings further prove that, as with the storefront context that is payday lender “protections” like “installment choices” and “cooling down periods” just don’t stop the period of perform loans.

You will find clear signals that bank payday financing will develop rapidly without prompt action that is regulatory. Fiserv, Inc., a provider of computer pc pc software systems into the industry that is financial is rolling out a bank payday pc computer software product it calls “Relationship Advance.” Fiserv is reporting significant desire for this product: “The pipeline is incredibly strong. We’ve had some good mid-tier signings over the past three, four months so we see this as a fascinating driver of … high-quality payday loans in Utah recurring income. ”[ vi]

Fiserv’s marketing of this Relationship Advance product has included promises that, within couple of years, income through the product “will be higher than all ancillary fee income combined”[ vii] and that the merchandise can lead to little-to-no “overdraft revenue cannibalization;”[ viii] in other words, it will probably add another high charge supply without reducing overdraft charge income.

Finally, pay day loans erode the assets of bank clients and, as opposed to market cost savings, make accounts that are checking for several clients. They induce uncollected debt, banking account closures, and greater amounts of unbanked Us americans. A few of these results are inconsistent with both customer security and also the security and soundness of finance institutions.

Please go quickly to make sure that payday lending by banking institutions will not be more extensive, also to make sure that those banking institutions presently making payday advances stop providing this inherently dangerous item.

We appreciate your consideration of our issues.

AFL-CIO People in the us for Financial Reform Center for Responsible Lending Church of England Ethical Investment Advisory Group customer Action Consumer Federation of America people Union Demos First Nations Development Institute Green America Jesuit Conference Jewish Reconstructionist Federation Leadership Conference for Civil and Human Rights principal Street Alliance Missonary Oblates, United States Province NAACP nationwide Advocacy Center regarding the Sisters of this Shepherd that is good National of Consumer Advocates nationwide Community Reinvestment Coalition National Consumer Law Center (on the part of its low earnings customers) nationwide Fair Housing Alliance National People’s Action SYSTEM, a nationwide Catholic personal Justice Lobby Mercy Investment solutions Pax World Funds PICO nationwide system Progressive resource Management Responsible Endowments Coalition SEIU 32 BJ Sisters of Charity of this Blessed Virgin Mary Sojourners The Greenlining Institute Trillium resource Management United Church of Christ Justice and Witness Ministries US PIRG