WASHINGTON — Five Senate Democrats are urging regulators to stop several large banks from offering high-interest, short-term loans, warning that the products, which they say resemble payday loans, are "unsafe and unsound."
The lawmakers praise recent statements by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency addressing concerns about nonbank payday lending and similar deposit advance products offered by banks including Wells Fargo (WFC), U.S. Bank (USB), Fifth Third Bancorp (FITB) and Regions Financial (RF). But they argue that more must be done.
"As the agencies responsible for the safety and soundness of the financial institutions you supervise, you are compelled to stop them from making payday loans and to prevent additional banks from beginning to do so," the senators said in a Jan. 2 letter addressed to Ben Bernanke, Federal Reserve Board chairman, Thomas Curry, Comptroller of the Currency and Martin Gruenberg, chairman of the FDIC. "We urge you to take meaningful regulatory action that ensures that no bank, regardless of its prudential regulator, structure loans in a way that traps its customers in a cycle of high cost debt."
The senators also ask the OCC to withdraw proposed guidance issued in June 2011 that addresses this type of lending, because it would not "effect a change in the fundamental structure of the product that creates the cycle of debt: the high cost combined with short-term balloon repayment," the letter says. "Rather, signals from the financial industry indicate that banks would view this guidance as a green light to proceed with widespread payday lending."
The letter was signed by Sens. Richard Blumenthal of Connecticut, Richard Durbin of Illinois, Charles Schumer of New York, Sherrod Brown of Ohio and Tom Udall of New Mexico.