Five United States Senators—Senators Richard Blumenthal, Sherrod Brown, Richard Durbin, Charles Schumer, and Tom Udall—have asked federal regulators http://rspnsb.li/UBdcq6 to stop banks from making predatory payday loans. The banks in question are making payday loans with triple-digit interest rates, essentially duplicating the storefront payday businesses that routinely trap lower-income borrowers in long-term harmful debt.
In a letter dated January 2, the senators urged regulators to stop payday loans by banks immediately on the grounds that these loans pose safety and soundness risks. The writers say this product must be stopped "before it becomes an even larger problem in the states we represent."
Only four of the nation's major banks are making high-cost payday loans: Wells Fargo Bank, Fifth Third Bank, U.S. Bank and Regions Bank. To their credit, banks such as Bank of America, JP Morgan Chase, Citibank and the vast majority of state and national banks are not making these loans. In fact, a recent survey by the Federal Deposit Insurance Corporation (FDIC) shows that banks offering small loans tend to give borrowers 90 days or more to repay, with an annualized interest rate of 36% or less.
By contrast, banks pushing payday loans charge annual interest rates in the triple digits. For a typical 10-day loan costing $10 for each $100 borrowed, the effective APR is 365%. This type of lending by non-depository payday lenders is prohibited or significantly restricted in 19 states. In some cases, these big banks are undermining state laws by making payday loans even where they have been banned.
We commend the five senators for taking a stand against pernicious lending that preys on vulnerable consumers without considering their ability to repay. Recognizing that bank payday loans raise a safety-and-soundness concern—not only a consumer protection one—the senators sent the letter to the Office of the Comptroller of the Currency, the FDIC and the Federal Reserve.
For more information, contact Kathleen Day in DC at 202.349.1871 or kathleen.day@responsiblelending.org; Graciela Aponte in Calif. at 510.379.5518 or graciela.aponte@responsiblelending.org; or Ginna Green at 510.379.5513 or ginna.green@responsiblelending.org.