Step aside, Tony Soprano: Big banks will now lend money at 300 percent interestwithout threatening to break a leg.
Then again, the payday loans some big banks are offering can have other ill effects, such as financial ruin, according to a new study by the Center for Responsible Lending. Even as public anxiety grows about the dangers of payday lending, with 15 states recently banning the practice, many big banks are offering the service to their customers.
“Despite federal banking regulators’ recognition of the abuses of payday lending and aggressive action blocking previous bank partnerships with payday lenders, a few large banks have begun offering payday loans directly through checking accounts,” the study says. Large banks offering the service include Wells Fargo, U.S. Bank, Regions Bank and Fifth Third Bank.
The average annual percentage rate on a bank payday loan is 225 to 300 percent, the study says. Banks that offer payday loans extract payments automatically from the borrowers’ checking accounts on the next pay cycle. In some cases, that withdrawal cleans out a borrower’s checking account, leading to bounced checks. According to the study, users of paycheck advances are twice as likely to overdraw their bank accounts, leading to even more fees for the banks. And that’s just the start of the potential problems.
NEW YORK — For more than five years, many homeowners who complained about mortgage industryforeclosure abuses have wondered whether anyone with a financial stake in keeping them in their home was paying attention. On Thursday, with the release of a new report from a federal watchdog, they got their answer: No.
The report, by the inspector general of the Federal Housing Finance Agency, says banks and other companies that manage more than 10 million home loans for Freddie Mac “largely failed” to alert themortgage giant to the most serious category of homeowner complaints, despite a requirement they do so. These “escalated complaints” often include the most serious allegations of misconduct, including improper fees, misapplied mortgage payments and a frustrating cycle of lost paperwork and unreturned calls. In some instances, the mismanagement has led to a wrongful foreclosure.
“The results are shocking on a number of different levels,” said Steve Linick, the FHFA inspector general, in an interview with The Huffington Post. “It is surprising that servicers were not reporting in such large numbers, that Freddie was not on top of this, and that [the FHFA] did not catch it in its exam.”
Four of the largest bank servicers — Bank of America, Wells Fargo, Citigroup and Provident — reported no escalated cases to Freddie Mac, despite handling more than 20,000 over a 14-month period, according to the report. Freddie Mac examiners did not notice that the mortgage companies were failing to disclose the complaints, nor did the FHFA, which relied on “incomplete” Fannie Mae examinations, the report concludes. The FHFA oversees the bailed out lenders Freddie Mac and Fannie Mae.
But less than a week after the Levin report, the House Agriculture Committee will hold a markup session today on seven bills designed to gut derivatives regulations passed in the Dodd-Frank financial reform law. If the bills pass, practically every improper and illegal action that JPMorgan Chase took in the London Whale debacle would be either made legal or allowed to foster outside of regulatory oversight. It borders on unthinkable that lawmakers on both sides of the aisle would pick this moment to undermine derivatives rules, right when we get a case study in the dangers of bank misuse of derivatives. (As Bartlett Naylor of Public Citizen told Salon, “At least the NRA isn’t proposing that all citizens should be allowed to own surface-to-air missiles in their homes.”)
You may be asking yourself why some bills on financial regulation run through the House Agriculture Committee. It turns out that the Agriculture Committees have held jurisdiction over derivatives since the mid-19th century, when farmers used derivatives to achieve stability over future prices. Traders still use derivatives for corn and other commodities, but the world of derivatives has grown far more sophisticated over the decades. Nevertheless, congressional committees zealously guard their jurisdictions, and so a bunch of lawmakers from rural states get to determine a major aspect of financial policy.
It’s not as if the House Financial Services Committee actually has more expertise on these issues; most members of Congress take their cues from what they hear from financial lobbyists. All those Wall Street campaign contributions don’t hurt, either. But one advantage the finance lobby gains by working deregulation through the Ag Committee is that they can work in relative anonymity. The Ag Committees simply garner less attention from the press and the public at large, making it easier for Big Finance to operate.
What OIG Found . . . First, evidence suggests that most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases. As of December 2012, 1,179 or 98% of Freddie Mac’s servicers had not reported on any escalated cases even though they managed 6.6 million mortgages for Freddie Mac.
Full report below…