There’s good news for the longer term financial well-being of cash strapped individuals. Several major banks targeted by Green America and our allies – Wells Fargo, Regions Financial, US Bank and Fifth Third – are all phasing out short term loans that have had interest rates of up to 365%. These loans, known as “deposit advance loans” or more commonly as “payday loans” have trapped people in ongoing cycles of debt resulting in ever more borrowing.
Last spring Green America wrote to the Office of the Comptroller of the Currency (OCC) and to the Federal Deposit Insurance Corp. (FDIC) calling attention to the problem of bank payday loans. This product is exploitative when offered by storefront payday lenders, and no less exploitative when offered by a bank. Green America was pleased that the Comptroller of the Currency Thomas Curry went on record saying: “We have significant concerns regarding the misuse of deposit advance products.” Similarly, when financial regulators issued new proposed guidance on bank payday loans, FDIC Chairman Martin J. Gruenberg stated that: “The proposed supervisory guidance released today reflects the serious risks that certain deposit advance products may pose to financial institutions and their customers.”
Research from the Consumer Financial Protection Bureau found that more than 50% of bank payday loan borrowers took loans totaling at least $3,000 and of these borrowers, more than half paid off a loan only to take out another loan within just 12 days. We also know that more than a quarter of payday loan borrowers are senior citizens. Clearly the need for low dollar loans to individuals needs to be met with financial products that foster financial stability rather than increased indebtedness. (2020 Editors Note: Unfortunately, since the publishing of this article, CFPB guidelines on payday lending have been rolled back, making this fight all the more pressing once again.)
We now urge the Federal Reserve to set forth the same guidance as the OCC and FDIC have issued and we urge the Consumer Financial Protection Bureau to take action to restrict harmful payday lending. If you are fed up with the practices of many mega-banks you can switch your banking to a financial institution that actually supports communities. Learn more at: www.BreakUpWithYourMegaBank.org