Read

Error message

Notice: Undefined index: base_url in include_once() (line 125 of /home3/occupyco/public_html/dev/sites/default/settings.php).

User menu

Search form

Big Banks Exit the Payday Loan Business

Big Banks Exit the Payday Loan Business
Tue, 2/4/2014 - by Blake Ellis
This article originally appeared on CNN Money

Several big banks are exiting the small dollar, short-term loan business after federal regulators warned that they would look into whether these high-interest, payday-like loans violate consumer protection laws.

Wells Fargo, U.S. Bank, Fifth Third and Regions announced that they would discontinue their so-called deposit advance products. These are typically short-term loans of a few hundred dollars or less that are automatically repaid from a customer's checking account each pay period. Likened to payday loans, they often carry triple-digit interest rates when calculated on an annualized basis.

Banks have defended the loans, saying they help customers when they need an emergency line of credit but can't qualify for a traditional loan. But consumer advocates, like the Center for Responsible Lending, call them "predatory" and have called on federal regulators to ban the products. They say the loans carry such steep fees that borrowers often can't afford to pay them back by the time the loan is due — leading them to renew the existing loan or take out a new one.

A report from the Center for Responsible Lending found that advance loans issued by banks carried an average term of 10 days, with a fee of $10 per $100 borrowed — amounting to a 365% APR. Customers remained stuck in the loan cycle — meaning they owed money to the bank — for an average of 175 days per year.

In November, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporationissued a warning to banks that offer deposit advance loans, saying that small-dollar loans need to be affordable and that the borrower's ability to repay needs to be taken into consideration when issuing these loans. The two agencies said they would examine the banks' products to see if they meet these requirements.

And now, several banks have decided to scrap these loans altogether.

U.S. Bank said it is ending its deposit advance program for new customers and discontinuing the program for existing customers on May 30, in order to "align with final regulatory guidance" from federal regulators.

"We recognize our customers' need for short-term, small dollar credit," Kent Stone, vice chairman of consumer banking sales and support at U.S. Bank said in a statement. "We are committed to finding new solutions that meet the needs of all of our customers and fit within the current regulatory expectations."

Wells Fargo said checking accounts opened after Feb. 1 will no longer be offered its "Direct Deposit Advance" service, and existing customers will only be able to continue using the service until the middle of the year. Regions' Ready Advance product is no longer be available for new customers as of Jan. 22, and the bank is developing a transition plan for existing customers.

Fifth Third Bank stopped offering its deposit advance service on Jan. 31 and will wind down its program for existing customers by the end of the year.

Consumer advocates celebrated the news.

"The Consumer Federation of America applauds the elimination of these products, which harm consumers through high rates and an insufficient consideration of borrowers' ability to repay without additional borrowing. This is a very positive step for consumers," Tom Feltner, director of financial services at CFA, said in a statement.

Originally published by CNN Money

3 WAYS TO SHOW YOUR SUPPORT

ONE-TIME DONATION

Just use the simple form below to make a single direct donation.

DONATE NOW

MONTHLY DONATION

Be a sustaining sponsor. Give a reacurring monthly donation at any level.

GET SOME MERCH!

Now you can wear your support too! From T-Shirts to tote bags.

SHOP TODAY

Sign Up

Article Tabs

prison reform, incarceration rates, private prisons, for-profit prisons, white supremacy, enslavement, climate justice, racial justice, Green New Deal

The year 2020 has caused many white people to realize we live in a racist system. The Green New Deal is about systemic change for all, and deconstructing racism must be front and central in this agenda.

coronavirus pandemic, Donald Trump, Boris Johnson, Jair Bolsonaro, COVID-19 deaths, downplaying coronavirus

By infecting three of the world’s most right-wing leaders, the coronavirus underscored not only the incompetence and irresponsibility of their governments – but the truth that their brand of populism doesn't keep people safe.

COVID-19, corporate bailouts, corporate welfare, corporate destruction

Corporations are not "too big to fail" and, when they commit crimes, they are not "too big to jail." As David Whyte writes in his new book, "Ecocide: Kill the Corporation Before It Kills Us," the moment is now to rein in out-of-control corporate power.

The world has lost an incredible thinker and doer. I have lost an amazing friend. A void exists where before it was filled with David's optimism, humour and joy.

Kevin Zeese speaks at a rally for Chelsea Manning. By Ellen Davidson.

Kevin fought to bring truth every day. We must not lose this struggle.

prison reform, incarceration rates, private prisons, for-profit prisons, white supremacy, enslavement, climate justice, racial justice, Green New Deal

The year 2020 has caused many white people to realize we live in a racist system. The Green New Deal is about systemic change for all, and deconstructing racism must be front and central in this agenda.

coronavirus pandemic, Donald Trump, Boris Johnson, Jair Bolsonaro, COVID-19 deaths, downplaying coronavirus

By infecting three of the world’s most right-wing leaders, the coronavirus underscored not only the incompetence and irresponsibility of their governments – but the truth that their brand of populism doesn't keep people safe.

COVID-19, corporate bailouts, corporate welfare, corporate destruction

Corporations are not "too big to fail" and, when they commit crimes, they are not "too big to jail." As David Whyte writes in his new book, "Ecocide: Kill the Corporation Before It Kills Us," the moment is now to rein in out-of-control corporate power.

The world has lost an incredible thinker and doer. I have lost an amazing friend. A void exists where before it was filled with David's optimism, humour and joy.

Kevin Zeese speaks at a rally for Chelsea Manning. By Ellen Davidson.

Kevin fought to bring truth every day. We must not lose this struggle.