Anyone who has read previous issues of the Report has probably figured out that I’m not a real big fan of the payday lending industry. In fact, I consider this industry to be much like a cancer on working men and women, and especially on our nation’s lower income citizens who receive a pay check. It now appears banks are becoming active in this area of concern. Federal regulators have commenced an investigation into the practice – one that banks don’t like to talk about – and that’s because in-house payday loans aren’t something most folks would expect to find in a real bank. These high-interest, short-term loans — once only offered at storefront corner shops and check cashiers — are now finding a home in a number of banks. Martin Gruenberg, acting chairman of the FDIC, told Americans for Financial Reform, a consumer lobby group, last month:

The FDIC is deeply concerned about these continued reports of banks engaging in payday lending and the expansion of payday lending activities under third-party arrangements.

It’s good to see the FDIC getting involved. It appears the big banks are increasingly offering the types of services that typically have not been available at real banks. Instead, storefront lenders or check cashiers were the source of these loans. Interestingly, but not surprisingly, bank-issued payday loans are rarely advertised. I can understand why a bank wouldn’t want to be compared to the typical payday lending operation. Them becoming blood-sucking payday lenders is not something real banks would want the public to know about.

The FDIC, according to Gruenberg, will now investigate banks that make payday loans. He expressed concern over the use of outside software used to administer these loans in a May 29 letter to the consumer group. The letter was a response to a February petition from Americans for Financial Reform, signed by more than 200 organizations and individuals, asking the federal regulator to stop banks from offering these services. The petition charged that advance loans by banks, including Wells Fargo, Fifth Third, Regions and US Bank, are structured like payday loans with high interest rates and balloon payments, and undermine the law in areas where payday lending has been restricted or prohibited.

Advance deposit loans at banks allow account holders to receive an early loan on a direct deposit or paycheck. Last year, Regions Bank started offering its Ready Advance product, instant loans of $50 to $500. The bank charges $1 for every $10 borrowed. Repayment is deducted automatically from the next occurring direct deposit. Wells Fargo offers Deposit Advance loans, charging $7.50 for every $100 borrowed, but only in select states.

For some consumers, these products might be more affordable than a bank overdraft, a service that can provide a very short float at a cost of $35 per item. But that doesn’t make a payday loan a good thing for a borrower. Consumer advocates have also been critical of overdraft fees, which the Consumer Financial Protection Bureau is investigating, and for good reason.

Fortunately for consumers, storefront payday lending has become an increasingly political issue for cities and states throughout the country. In May, San Jose, Calif., became the largest city in America to limit storefront payday lenders — joining the ranks of dozens of other cities and states that have taken steps to restrict the practice. Kathleen Day, a spokeswoman for the Center for Responsible Lending, believes the FDIC’s investigation is significant in the push for stronger consumer protections for the controversial lending practice. It will be very interesting to see what comes from the investigation and what is done with the work-product. We will continue to monitor things in the pay-day lending industry.

Source: Huffington Post