National bank regulator lets unsafe practices flourish

Are banks the new face of payday lending?


Center for Responsible Lending
February 24, 2010

A key federal regulator for years has let national banks engage in lending practices that the regulator itself admits harm consumers and lenders, according to two new reports from the Center for Responsible Lending.  (For the full reports go to:  http://www.responsiblelending.org/payday-lending/policy-legislation/regulators/Mainstream-banks-making-payday-loans.html and http://www.responsiblelending.org/payday-lending/policy-legislation/regulators/National-Bank-Regulator-Enabled-Overdraft-Abuses.html)

The reports focus on two of many areas in which the regulator—the Office of the Comptroller of the Currency, or OCC—has fallen down on the job: payday lending and checking account overdraft charges. The OCC's regulatory lapses documented in the reports include the following:

● Allowing nationally chartered banks to evade state law and offer high-interest payday loans directly to consumers. Years ago, the OCC cracked down on bank partnerships with payday lenders, citing concerns about "safety and soundness, compliance, consumer protection, and other risks to banks." Yet the OCC allows the banks it oversees to make the same type of loans directly.

● Allowing national banks to market payday loans to account holders as a way to return accounts to good standing after overdraft charges are assessed, thus encouraging repayment of one high-cost debt with another.

● Allowing banks to unfairly increase overdrafts charges—which have shot up 35 percent in just two years and now cost Americans $24 billion per year—even though the OCC determined that these practices were a problem for consumers as early as 2001.

●  Failing to investigate whether banks' payday loans and abusive overdraft programs violate anti-discrimination and fair lending laws.

Several civil rights leaders agree that the status quo cannot continue:

"These reports reveal the inadequacy in our current system of oversight," said Gary Flowers of the Black Leadership Forum. "Unfair overdrafts and bank payday loans strip working people of their hard-earned funds. Given the state of our economy, one would think we could expect some real reform now. Instead, we see a national bank regulator stepping back and letting more unjust practices spread through the banking system."

"The continued predatory targeting of African Americans and other racial and ethnic minorities by unscrupulous financial institutions harms our initiatives to build wealth or simply retain financial stability," said Hilary Shelton, Director of the NAACP Washington Bureau and the Senior Vice President for Advocacy and Policy.  "As these reports show, the federal government hasn't been protecting all Americans from financial exploitation.  This is why Congress needs to create an entity as soon as possible dedicated to safeguarding all consumers."

"NCLR calls on the OCC to fully enforce its own guidance on payday loans and overdraft fees," said Janis Bowdler, Deputy Director of the Wealth-Building Policy Project at NCLR. "High bank fees and abusive practices not only disproportionately affect communities of color, but they drive families away from mainstream banking system. Instead, OCC should be focused on how to connect the unbanked with sustainable bank products."

CRL predicts that unless the OCC and other bank regulators curb bank payday loans immediately, this unsafe product will likely spread throughout the banking industry as swiftly as overdraft abuses have.

The OCC's failure to police payday and overdraft practices, coupled with its catastrophic failures in the credit card and subprime mortgage arenas, has cost financially distressed borrowers as well as taxpayers greatly. These repeated failures underscore the need for an independent regulator focused solely on ensuring basic, common-sense financial safeguards for consumers. As the current recession makes painfully clear, such safeguards are the underpinning of a safe and sound banking system and, ultimately, of the entire economy.

 

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org; or Charlene Crowell at (919) 313-8523 or charlene.crowell@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.