Dear Chairman Bernanke, Director Cordray, Director Gruenberg, and Comptroller Curry:
One year ago, we wrote to urge the federal regulators of our nation's banks to take immediate action to stop banks from making unaffordable, high-cost payday loans. We were encouraged by the FDIC's May letter indicating that it was deeply concerned and was investigating the practice, and we have also been encouraged that the OCC has not finalized the guidance it proposed in 2011 that would have essentially legitimized the practice. But we are also concerned that a year has passed without decisive regulatory action, so we write to renew our call.
Direct deposit "advance" loans offered by a handful of banks, including Wells Fargo, US Bank, Fifth Third, Regions, Bank of Oklahoma and its related banking divisions, and Guaranty Bank, are structured and function just like loans from payday loan stores – carrying a high-cost combined with a short-term balloon repayment. Research has long shown that payday loans trap borrowers in a cycle of expensive long-term debt, causing serious financial harm to borrowers, including increased likelihood of bankruptcy, paying credit card debts and other bills late, delayed medical care, and loss of basic banking privileges because of repeated overdrafts. Payday lending has a particularly adverse impact on African Americans and Latinos, as a disproportionate share of payday borrowers come from communities of color. ...