The Hill's Congress Blog
By: Liz Ryan Murray
April 9, 2013
Today Senator Dick Durbin is reintroducing a critical bill that will cap interest rates on predatory credit. The "Protecting Consumers from Unreasonable Credit Rates Act" is a desperately needed law that will finally crack down on strip mall loan sharks and shady internet lenders alike, but it would also put the brakes on the dirty little secret of the predatory lending industry: big bank payday lending.
Some of America's largest banks, back to record profitability after the bail-outs, have started offering their own customers triple digit interest payday loans with names like "Direct Deposit Advance." These short term, high interest loans, commonly known as "payday loans" are decimating the bank accounts of some of America's most vulnerable residents and they must be stopped.
Big banks like Wells Fargo and U.S. Bank are taking advantage of the economic desperation of American's most vulnerable to line their pockets, and it is shameful. According to recent research published by the Center for Responsible lending, a full 25 percent of bank payday loans are to recipients of Social Security -- most of whom are seniors or people with disabilities.
When Social Security recipients take out a bank payday loan, the bank takes an average of 33 percent of their next deposit, often income for the entire month, to pay back the loan and fee. For context, the average retired senior on Social Security is getting $1,186/ month -- leaving them with just $794.62 to live on.
Many people who would avoid sketchy storefronts with "get cash now" signs don't realize their personal bank's short-term loans could be so toxic. In some ways, bank sponsored pay day loans are worse than the street corner variety: they go after direct deposited earned benefits like Social Security, have the same record interest rates, trap Americans in a cycle of debt that requires a new loan with every pay check to pay off the last and skirt state and local laws to do it.
Bank payday loans take advantage of the trust inherently built in a long-term financial relationship. Every day Americans assume someone is regulating the banks, someone is looking out for consumers, but the fact of the matter is that no one is. Our regulators are failing consumers and instead protecting the profits of banks to the detriment of everyone.
These loans are overwhelmingly targeted at low income communities and communities of color, stripping wealth from those who are least able to afford it: Seniors with an unexpected accident, parents with unexpected school expenses, a person with disabilities short on food money for the week.
The states know this: many states have passed laws to ban payday loans, but big banks have gotten around the bans -- which is why we need federal intervention.
While we're waiting for Congress to pass Senator Durbin's legislation that would outlaw this kind of lending across the board, the federal banking regulators could, with the stroke of a pen, tell the banks they supervise to immediately stop offering this inherently abusive and dangerous product. This message is being delivered today to the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation in the form of a petition spearheaded by Credo and Color of Change and signed by over 157,000 Americans. Toxic and predatory credit products have no place in our communities and federally chartered banks certainly have no place in this toxic and predatory market.
We applaud and thank Senator Durbin for introducing the Protecting Consumers from Unreasonable Credit Rates Act. In the meantime, America's financial regulators, from the Fed to the OCC to the FDIC, must do their duty and act now to put a stop to this extortion.