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CRL Report: Banks Want to Start Making Debt Trap Payday Loans Again

Wednesday, July 12, 2017
Rebecca Borné

WASHINGTON, D.C. - A new Center for Responsible Lending (CRL) policy analysis, "Been There; Done That," warns that banks are seeking the repeal of consumer protections established in 2013 that ensured that banks could no longer keep borrowers trapped in unaffordable payday loans.

Six banks—Wells Fargo, US Bank, Regions Bank, Fifth Third Bank, Bank of Oklahoma and GuarantyBank—were making predatory payday loans to their own account holders until 2013, when a public outcry and risks to the banks’ safety and soundness led bank regulators to establish commonsense guidelines to curb these unaffordable loans. The banks were siphoning $500 million annually from customers who were caught in a devastating debt trap structured just like storefront payday lending.

Now, as Congress invites a tempest of deregulation that would open the floodgates to predatory lending, the American Bankers Association is urging regulators to block and repeal protections against these dangerous loans.

“The banking industry is taking advantage of an environment in Washington where consumer protections are under siege,” said Rebecca Borné, CRL Senior Policy Counsel and author of the report. “While payday lending has been effectively banned in 15 states plus the District of Columbia, payday lenders are still operating elsewhere and siphoning $8 billion per year in abusive fees from low-income communities. The banks want a piece of that action, to charge their own customers rates of 200 and 300% APR in order to strip away millions of dollars a year from fees on intentionally unaffordable loans.”

The Consumer Financial Protection Bureau (CFPB) is also the target of anti-consumer initiatives, including a proposal to eliminate its authority to regulate payday and car-title lending at all. The CFPB is in the process of finalizing a commonsense rule addressing these abusive 300% interest loans.

Like storefront payday lenders, the six banks making payday loans marketed them as an occasional bridge to the next payday, not meant for long-term use. But in 2011, CRL documented that the median bank payday borrower had 13.5 loans per year and was in debt at least part of six months annually. And in 2013, the CFPB found that borrowers spent an average of 114 days during the year in triple-digit debt. And CRL also found that more than half of borrowers had more than ten loans annually, and 12% had more than 30 loans annually.

The extreme harm payday loans cause borrowers has motivated communities, advocates, and state policymakers to address the practice. Data has shown that payday loans result in increases in difficulty paying living expenses, delinquency on credit card and other debt, delayed medical care, overdraft fees, loss of checking accounts and bankruptcy.

In their 2013 guidance, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency advised the banks they oversee that they must assess the ability of their customers to repay the loans without getting into deeper financial trouble. Instead, the banks got out of the business.

CRL recommends that the regulators keep the guidance in place and that the CFPB finalize a strong rule protecting consumers from debt trap loans. The policy analysis includes a range of other recommendations to stop both predatory storefront and online lending and the threat of bank payday lending.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Carol Hammerstein at carol.hammerstein@responsiblelending.org.