Last Friday both Wells Fargo and US Bank announced that they were no longer going to provide their version of payday loans– so-called deposit advance loans. These loans are provided to bank customers through their checking accounts. While they may seem like a harmless service, their interest rates tell another story.
The median duration of advance balance episodes in our sample was 12 days. Using this duration, we can calculate an APR for different fees that may be charged for an advance. For example, a typical fee is $10 per $100 borrowed. This fee would imply an APR of 304% given a 12-day duration. A hypothetical lower fee of $5 per $100 advanced would yield an APR of 152%, while a hypothetical higher fee of $15 per $100 advanced and would yield an APR of 456% with the same 12-day term. Thus, the APR will vary significantly depending on the duration of a particular advance balance episode and the fee charged by an individual institution.
As you can see, these high-interest loans, with their short repayment periods, are as harmful as payday loans offered by storefront lenders.
The California Reinvestment Coalition has worked to limit the payday lending industry throughout California, through state legislative work and through working with local community leaders to help enact ordinances restricting the growth of payday lending. For example, as part of the Coalition Against Payday Predatorsc, we worked with coalition partners, community organizations, and consumers to illustrate the damage caused by payday loans in cities like Sunnyvale and Gilroy, both of which have passed ordinances restricting the future growth of payday lenders.
Looking ahead to 2014, CRC will be working with our state and national partners to continue the momentum against these predatory loans. The Consumer Financial Protection Bureau is expected to write rules governing payday lending this year and CRC members, allies, and consumers will strongly encourage the CFPB to consider consumer safeguards to protect people from the payday loan debt trap.
Do you currently have a payday loan? Are you having issues with your lender harassing you? If so, consider filling out a complaint with the Consumer Financial Protection Bureau. The more they hear about consumer abuses, the more likely they are to implement strong consumer safeguards in their new rules. You can fill out a complaint here: CFPB Complaint website.
Are you interested in learning more about advocacy against payday lending? Contact CRC’s Payday Loan Organizer, Liana Molina: email@example.com.