Big Named Banks Partake In Payday Loan Profits
With 12.5 million Americans unemployed and many facing inevitable debt harassment, consumers are turning to online payday loans, often with obscene interest rates in excess of 500 percent, to make ends meet. To the financially strapped, worrying about today has displaced planning for tomorrow, virtually assuring future financial problems, ruinous effects to their credit report and the potential for liens on home or seizure of property from default.
While several states are fighting to ban what many officials consider to be legalized loan sharking, big-name banks like JPMorgan, Chase, Bank of America, and Wells Fargo have found inventive ways to profit by supporting the payday lending industry. Acting as a behind-the-scenes partner, some large banks enable payday lenders to withdraw loan repayments automatically from borrowers’ bank accounts, even in states where such loans are banned. In other situations, the same banks are allowing payday lenders to debit checking accounts even after the consumer has tried to stop such withdrawals.
While lenders counter that debtors are free to stop such deductions, cooperative banking agreements often require at least three days notice or more before the next withdrawal. Even then, there are no guarantees that the account will not be debited as some banks do not honor instructions and others are too slow to stop payments before they are made.
Why do large banks help payday lenders? The payday loan arrangement can provide a big payoff to them as withdrawals often cause an avalanche of account fees such as overdrafts, minimum balance requirements, withdraw limits, and surrender of interest. According to a report released this month by the Pew Charitable Trusts, “roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts” (Silver-Greenberg). To banks, revenue from fees and costs is coveted “free” money, in which the aftermath of tougher financial regulations that have curtailed fees on debit and credit cards then replaces money lost from those former practices.
While there is no definitive list of all the lenders who lend support to payday lending activities, it is estimated that roughly three million Americans took out an Internet payday loan in 2010, according to the July reporting of the Pew Charitable Trusts.
Consumers beware, even your “friendly” bank may not be as friendly as you think.
Silver-Greenberg, Jessica. “Major Banks Aid in Payday Loans Banned by States.” NYTimes.com. 23 February 2013