Tag Archives: payday lender

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Payday Loans Cost Economy $1 Billion And Thousands Of Jobs, Study Finds: CNBC

Payday Loans Cost Economy $1 Billion And Thousands Of Jobs, Study Finds: CNBC

CNBC:

Payday loans cost the U.S. economy nearly $1 billion and thousands of jobs in 2011, according to a report from the Insight Center for Community Economic Development.

The study says that the burden of repaying the loans resulted in $774 million in lost consumer spending and 14,000 job losses. Bankruptcies related to payday loans numbered 56,230, taking an additional $169 million out of the economy.

“Payday loans are an ongoing problem and an economic drain,” said Tim Lohrentz, the center’s program manager and author of the report. “The amount is not huge in the big picture of the total economy, but it’s big enough.”

Designed to meet the need for emergency cash, the short-term loans are essentially advances on wages and meant to be repaid on the next payday—usually within two weeks. Borrowers secure the loans by providing a postdated check or electronic access to their bank account.

Big Banks Offer Payday Loans At 300 Percent Interest: Study

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.

Read on.

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Major Banks Aid in Payday Loans Banned by States

Major Banks Aid in Payday Loans Banned by States

Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

Wells Fargo Called Out For Continuing To Offer Payday Loans

The Consumerist:

The Community Reinvestment Act of 1977 requires that FDIC-insured banks be examined and rated on whether or not they are meeting the banking needs in each of the communities in which they are chartered. But a pair of advocacy groups claim Wells Fargo deserves a lowered CRA rating because of loans that smell a lot like payday loans.

At the heart of the matter are Wells Fargo’s “Direct Deposit Advance” loans, which offer customers with certain checking accounts at the bank up to $500 in a high-interest loan in advance of the customers’ next direct deposit.

The loans have been highly criticized. Back in 2009, Tom Barlow at DailyFinance called Direct Deposit Advance “a good way to stay broke.” The bank claimed that the $2 interest on every $20 borrowed (it’s since dropped to $1.50 per $20) worked out to a 120% APR, but as Barlow points out, you only have a month to pay the loan off.

It’s worth noting that Direct Deposit Advance is not available to Wells Fargo customers in the following states and Washington, D.C.: Alabama, Connecticut, Delaware, Florida, Georgia, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia.

In a letter to the Office of the Comptroller of the Currency, which will soon be performing its examination of Wells Fargo’s CRA compliance, the Center for Responsible Lending and the National Consumer Law Center say Wells Fargo can call this loan whatever it wants, “but it is structured just like a loan from a payday loan storefront, carrying a high-cost (averaging 270% in annualized interest) combined with a short term balloon repayment (averaging just 10 days).”

The letter points out to the OCC that, per its own advisory letter about payday lending, the OCC notes that “payday loans” are “also known as ‘deferred deposit advances.’”

Payday lenders use courts to create modern debtors’ prison

Wakita Shaw’s troubles started with a $425 payday loan, the kind of high-interest, short-term debt that seldom ends well for the borrower.
But most of them don’t end up in jail. So Shaw was surprised in May of last year to hear that the St. Louis County police were looking for her. She and her mother went to the police station.
They arrested her on the spot.
They told her the bail was $1,250. “And I couldn’t use a bail bondsman to get out,” Shaw recalled.
The Bill of Rights in the Missouri constitution declares that “no person shall be imprisoned for debt, except for nonpayment of fines and penalties imposed by law.” Still, people do go to jail over private debt. It’s a regular occurrence in metro St. Louis, on both sides of the Mississippi River.
Here’s how it happens: A creditor gets a civil judgment against the debtor. Then the creditor’s lawyer calls the debtor to an “examination” in civil court, where they are asked about bank accounts and other assets the creditor might seize.

Read on.