Banks to Payday Lenders: Quit the Business or We'll Close Your Account

April 11, 2014
Washington Post 
payday lending news
More payday lenders say banks being scrutinized by the FDIC and the Office of the Comptroller of the Currency for direct-deposit advances are now telling them to cease and desist making payday loans or risk losing their bank accounts. At a Senate Banking subcommittee hearing in March, Sen. David Vitter (R-La.) said, "There is a determined effort, from [the Justice Department] to the regulators ... to cut off credit and use other tactics to force [payday lenders] out of business." However, Mark Pearce, director of the FDIC's Division of Depositor and Consumer Protection, says, "If you have relationships with a [payday lending] business operating in compliance with the law and you're managing those relationships and risks properly, we neither prohibit nor discourage banks providing services to that customer."

After warnings from the FDIC and OCC, Wells Fargo and five other large banks offering direct-deposit advances pulled out of the business earlier this year. Meanwhile, as part of "Operation Choke Point," the Justice Department has issued numerous subpoenas to banks and third-party processors over the past year to prevent scammers from accessing the financial system. However, the initiative aims to address fraud, not limit legitimate payday lending, department officials say.

Consumer advocates question banks' relationships with payday lenders. Adam Rust, director of research at Reinvestment Partners, says, "It's really frustrating that high-cost lenders can exist because of nationally regulated banks. I don't think banks should be allowed to sit back in the shadows and allow predatory lending to continue to occur in our neighborhoods."

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