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U.S. payday lenders are lashing out at the Consumer Financial Protection Bureau in the wake of a report that concluded the industry traps consumers in a cycle of debt.
May 2 -
Two federal regulators — the FDIC and the OCC — issued guidance on deposit-advance products that establish strict underwriting standards for payday loans offered by banks and any related third-party vendor.
April 25 -
Credit lines and expanded overdraft programs are being considered as alternatives for banks that want to curb their customers' use of payday loans.
March 27 -
Traditional lenders argue that state bans are merely driving consumers to Internet-based lenders that are largely unregulated and don't pay U.S. taxes.
March 4 -
Urban Trust, a Florida bank, had been under fire from consumer groups for allowing a payday lender to load loans onto its prepaid debit cards.
September 25
One PacificCoast Bank in Oakland, Calif., is regrouping as it looks to battle payday lenders in the San Francisco Bay area.
The $282 million-asset thrift recently pulled the plug on its One Pac Pal loan, which it tailored to offer low-income clients short-term credit at reasonable rates and terms. The program, which began 18 months earlier, lost too much money, says Kat Taylor, One PacificCoast's chief executive.
"We have not yet found an economically sustainable product that's sufficient to save enough people" from payday lenders, she says.
Still, Taylor vows to revisit the issue. Payday lending is "a death trap that ruins individuals, households and whole communities," Taylor says. It is "the scourge of our time."
One PacificCoast's failed initiative highlights the difficulties that community banks face as they attempt to
Loans must be profitable for the bank, but also "squeaky clean from a compliance perspective," Giltner says. Banks also need to end their reliance on credit scores for such loans, while also making credit available online. "It's hard for the community and regional banks to put these skills and capabilities together by themselves quickly," he says.
So the market for short-term liquidity is dominated by payday lenders, such as Advance America of Spartanburg, S.C., and
Several groups want to curtail the practice. On Thursday, Robert Johnson, the founder of Black Entertainment Television and Urban Trust Bank in Lake Mary, Fla., launched a campaign to convince minority groups, elected officials, and public interest groups to back a proposal to end payday lending.
Last fall, the Office of the Comptroller of the Currency flagged the $589 million-asset Urban Trust for offering prepaid debit cards that provided
The OCC, Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau have also indicated that they
One PacificCoast developed its One Pac Pal loan based on an FDIC short-term loan pilot project. The limits included a $1,000 lending cap, a 90-day term minimum and a 36% annual percentage rate cap. The thrift recruited companies to offer the loans to employees.
The FDIC ended its small-dollar loan pilot in 2009, issuing roughly 34,400 loans with a principal balance of $40.2 million. The FDIC would not make anyone available to discuss the program, though the agency
"The FDIC found that, with their guidelines, it was feasible to provide the loans, but not as profitable as folks would like," Molina says.
One PacificCoast, which is still analyzing the discontinued product, would not release financial details on its performance. Taylor says she plans to work with LendUp, a San Francisco online lender, to redesign the offering. If the thrift develops a financially feasible product, Taylor says she would let other banks use the program. (One PacificCoast would consider assessing a licensing fee.)
"We need to be in the business of creating bank customers, not destroying bank customers," Taylor adds.
One PacificCoast was able to spend the time and resources to develop its program in part because its holding company, One PacificCoast Foundation, is a nonprofit. Big banks, like Wells Fargo, have the resources to commit to research and development of similar products that it can make to customers at reasonable terms, she says.
Wells Fargo's product, which it has offered since 1994, is designed to help long-standing customers get through emergency situations, such as car repairs, says Richele Messick, a company spokeswoman. "It is an expensive form of credit not intended to solve longer-term financial needs," she says.
U.S. Bancorp's checking account advance product is "simple and transparent," with a $2 fee for every $20 advanced, says spokeswoman Nicole Sprenger. Loans are for emergency use and "we have strict limits and protections to help customers avoid becoming over-extended," she says.
Customers who choose payday loans "do the math, look at their available options and choose the one that is less expensive, says Amy Cantu, a spokeswoman for Community Financial Services Association of America, a payday lenders' trade group. "That's often a payday loan."
Payday lenders who are members of the association provide consumers with details about the loans' rates and fees, and how to properly use the products, Cantu says.
