New Orleans Payday lenders could not operate without the collaboration of the big money center banks. They are financiers providing the dollars being lent in predatory fashion to desperate lower income families. They are also the loan collectors by facilitating drafting from borrowers’ accounts to service the loans for the payday lenders, sometimes on multiple occasions as we all saw in the recent JPMorgan Chase scandal. Finally, it appears with some prodding from Congress, the Office of the Controller of the Currency (OCC) and the Federal Deposit Insurance Commission (FDIC) are moving to clamp down on some of the big banks payday lending business, especially that of notorious bad actor, Wells Fargo, and U.S. Bank, both of whom have been bottom fishing to compete against the most predatory players.
The new standard being proposed, similar to the recent consumer and low income advocate gains around home mortgages and other work done by the new Consumer Financial Protection Bureau (CFPB), would reportedly stress “affordability,” meaning that a loan could not be made where there was not a reasonable expectation of the borrower’s ability to repay. As ACORN Canada studies on payday lending have thoroughly shown the first loan often leads to a series of similar loans over a 15 month period as the borrower tries to extract themselves from the loans with repeated additional loans, deepening their financial crisis. Importantly, the government agencies are going to bar any additional loans for 30-days between loans and would not allow additional loans until the first loan is paid off.
Some of these so-called direct-deposit loans or “checking account advances” as U.S. Bank calls its product seem frighteningly like the tax preparer “advances” in anticipation of refunds, but of course payday loans are by definition marketed as loans against the coming payday, even if the borrower is out of work without a payday in sight. Hiding behind the notion that these loans are an “advance” and for the “convenience of the customer,” banks are also not disclosing the level of the interest rates involved, which are exorbitant, as you would imagine. “Convenience of the customer” must be a euphemism for describing the desperation faced by the borrower. Wells Fargo spokespeople, according to the New York Times, also tried to hide behind the facade that they were just lending a hand to customers facing an “emergency situation.” Well, yeah! Too little money and too much month! Come on, boys!
All of this is pure and simple loan sharking and part and parcel, of the criminal enterprise that big time banking has become these days, so it is refreshing to think that some of the regulators might be waking up and starting to do something about it. Hopefully they will move from the big fish to the little fish soon and go after the whole payday lending industry, which has been thriving in the great recession.