You'd expect 400% interest from a payday lender, but your bank?

1. Bank Payday Lending Basics
Bank Payday Lending Basics
Big Banks Getting Into
the Bad Business of
Predatory Payday Lending
Center for Responsible Lending
January 2012

2. Rise of Bank Payday Lending
Wells Fargo – “Direct Deposit Advance”
US Bank – “Checking Account Advance”
Fifth Third – “Access Now”
Regions – “Regions Ready Advance”

3. What We’ll Cover
• How payday loans create a debt trap
• How bank payday loans also create a debt trap
• Which banks are making payday loans? Where?
• How to find borrowers with bank payday loans
• How bank payday lending impacts the financial services
landscape
• Steps we can take to eliminate this abusive bank product

4. Abusive features of payday loans
Short-term loan = Long-term debt
• High fees
• Payment in full due on payday (balloon payment)
• Secured with signed personal check or electronic
access to the borrower’s checking account

5. The Cycle of Payday Lending

6. Payday Loans are DESIGNED to Trap
Responsible Business: Regular Customer = Happy Customer
Payday Lending: Regular Customer = TRAPPED Customer

7. Bank Payday Lending
Another arrow in the quiver of predatory products.

8. How They Sell It

9. What Does It Cost?

10. Bank Payday Versus Non-Bank Payday
Bank Payday Loan Non-Bank Payday Loan
• 365% ($10 per $100 borrowed for • 417% ($16 per $100 borrowed
10 days) for typical 2-week cycle)
• Due in full on next direct deposit • Due in full on next payday
• No underwriting • No underwriting
• Typical customer indebted for 175 • Typical customer indebted for
days/ year 212 days/ year

11. How Bank Payday Lending Works
• Customer has direct deposit for their paycheck, social
security or other benefits check
• Customer with direct deposit applies online or over
the phone
• At time of the next direct deposit, bank repays itself
the advance plus fee

12. 175 days at 365% APR
You’d expect 400% interest loans
from the corner payday lender,
not the banks.
• The average bank payday loan carries an annual interest rate of
365%.
• Bank payday customers are in debt an average 175 days per year.
• Nearly one quarter of bank payday borrowers are social security
recipients.

13. Who’s Doing It?

14. And Where?

15. Bank Payday Undermining
Consumer Protections

16. Eliminate It – Why?
Problems with Bank Payday Lending:
• Triple-digit APR not justified, bank repays itself out of customer’s direct
deposit.
• Loan terms designed to cause long-term debt.
• Marketed as overdraft alternative, but:
 One cash-draining product does not fix another and,
 Likely to increase rather than decrease overdraft problems.
• Likely increases the number of unbanked consumers.
• Undermines state consumer protections.
• Undermines military consumer protections.
• Legitimizes abusive rather than productive credit.

17. Eliminate It – Why Now?
• Number of banks still relatively small, so banks more subject to
regulatory and consumer pressure now.
• Number of banks is growing. Software consultant Fiserv promises
banks the product will add a high fee source without taking away
from overdraft and other fees.
• OCC’S recently proposed guidance is weak and, if finalized, threatens
to legitimize product.
• Bank payday lending gravely threatens state consumer protections
addressing storefront payday lending.

18. A Growing Threat
Fiserv, software consultant selling bank payday software:
• Promises that in two years, revenue from the [bank payday] product
“will be greater than all ancillary fee revenue combined.”
• Says it’s “getting a lot of interest “ from banks: “The pipeline is
extremely strong. We’ve had some very nice mid-tier signings over the
last three, four months.”

19. The Federal Regulators
Office of the Comptroller of the Currency (OCC)
• Supervises nationally chartered banks, like Wells Fargo and US Bank
Federal Reserve Board
• Supervises state-chartered banks who are members of the Federal Reserve,
like Fifth Third and Regions Bank
Federal Deposit Insurance Corporation (FDIC)
• Supervises state-chartered banks that are not members of the Federal
Reserve
Consumer Financial Protection Bureau (CFPB)
• Supervises all financial institutions (whether nationally chartered or state
chartered) that have over $10 billion in assets (including Wells Fargo, US
Bank, Fifth Third and Regions) with respect to consumer protection issues. In
addition, writes rules that apply to all banks and non-banks, regardless of
size.

20. What Are Advocates Already Doing?
• Raising Awareness
• Moving Money
• Reaching Out to Regulators
• Reaching Out to Banks

21. How Can You Help?
1. Identify individuals harmed by bank payday lending.
If you work directly with households facing financial distress, find
out if they’ve gotten caught up in a bank payday loan.
2. Sign a letter to the bank regulators.
3. Send us links to your work – pictures, videos, articles, action -
advocating for an end to this abusive product.
We’re documenting activity on bank payday lending around the
country. Help us show the banks and the regulators how the public
feels about predatory payday lending.

22. Finding Trapped Borrowers
Bank payday loans likely a hidden problem:
• No APR disclosure
• Automatic direct deposit deduction
• Don’t fall behind on this loan because bank takes its money first
• Other fees may be seen as cause of account shortfalls.
When investigating stories, you may need to ask:
• The name of the bank.
• The name of their advance product (eg., Direct Deposit Advance for
Wells Fargo)
• To look at their bank statement.
Please share stories you hear about. CRL will provide a form for collection.

23. Take-aways
• Direct deposit advances reproduce the payday
lending debt trap
• Banks are making payday loans across much of the
nation, even where states have consumer
protections.
• We can reverse this trend by working together.

24. Don’t Let Banks Legitimize Loansharking
Don’t let banks make
predatory payday lending
business as usual
for working Americans.

25. Q&A
Questions?
Ask now or contact us later.
Rachel.Anderson@responsiblelending.org
Rebecca.Borne@responsiblelending.org
www.facebook.com/CenterforResponsibleLending
@crlonline
@noloansharking