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Payday loans putting more banks at risk – FierceFinance

Is a payday loan crackdown coming?

It seems that way in the wake of the news that New York Attorney General has charged such an operator, Western Sky Financial and its affiliates, with various violations of usury laws. The operator contends that it has connections to American Indian tribes, which effectively immunize them from state laws.

But Eric Schneiderman was not dissuaded from filing his suit and attempting to shut the lender down. The AG argues that Western Sky and its affiliates have made at least 17,970 costly loans since 2010, racking up massive amounts in interest and fees. Schneiderman says that this business “preys upon New York consumers facing financial hardships with limited options.”

To be sure, this could be the beginning of something. Payday lenders and their online lending cousins have been in the cross hairs in many states and in Washington. While we expect these sorts of loans from small, somewhat shady operators, the really big news as of late has been that big legitimate banks have been moving in as well, eyeing much-needed fee revenue. Banks such as Wells Fargo, U.S. Bancorp, Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma have also moved into this niche under the banner of “direct deposit loans” or “advance loans.”

No less than JPMorgan has been shamed into making some changes to give customers more power over payday lenders and their ability automatically debit accounts. Bank of America would be wise to ponder such changes as well.

In fact, now would be a good time for all legitimate banks to rethink their offerings. True, the fee potential is strong, but so is the potential for enforcement action at the federal and state level. The pressure will mount quickly. The potential for reputational harm is palpable as well. Three community groups are pressing Regions to exit what they call a “dirty business,” for example. And Congress is taking a look at the impact on senior citizens.

Bank boards need to take a close look at these operations and make some tough decisions.

For more:
– here’s some background

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Direct Deposit Loans Gaining Acceptance as a Short-Term Emergency Cash Solution

JACKSONVILLE, Fla., Aug. 12, 2013 /PRNewswire-iReach/ — Years ago, direct deposit loan matching websites, such as Cashadvanceusa.net started a short-term lending trend that has now become commonplace even among larger national and regional banks. Wells Fargo, U.S.Bank and Regions Financial are now offering short-term cash advances or direct deposit loans to their account holders. This appears to be an indication that what was once thought of as a controversial form of short-term financing is now gaining popularity among consumers and acceptance among traditional banks.

The popularity of this financial vehicle, similar to so-called payday loans, seems to be connected to an increased number of account holders direct depositing their paychecks. A study in 2010 by NACHA — The Electronic Payments Association revealed that only 27 percent of employees were receiving paper paychecks. The other 73 percent were having their paychecks direct deposited.

A direct deposit loan basically works like this. A bank or lender offers a cash advance against your direct deposited paycheck. Typically the entire amount advanced is automatically withdrawn when your following paycheck is deposited or a partial amount is withdrawn through a series of smaller installments over the course of your next few direct deposits until the cash advance is paid back in full along with any additional fees or interest.

In a Bankrate.com article, all the bank spokespersons echoed the benefits of direct deposit loans. Richele Messick Wells Fargo spokesperson explained how this product was necessary to help customers through an emergency situation. Teri Charest, spokesperson for U.S. banks said the product was created for “unexpected, short-term borrowing needs.” And Evelyn Mitchell of Regions noted that the product is intended to help Regions customers every once in awhile with urgent credit needs.

A Cashadvanceusa.net spokesperson described the direct deposit loan as a “temporary solution but one that is necessary at times.” He pointed to the home page of the company’s website where their process is explained clearly. “We call them the ABCs of a cash advance: A or Approval has to do with our commitment to get borrowers approved quickly for a loan that fits their situation, B or buying time describes how borrowers should view these loans as bubble gum on a leaky pipe not a permanent solution.” But he noted that used wisely the loans can minimize or save borrowers from further financial damage. “Our belief is borrowers do not have to be hindered by a bad credit score. In fact, they can actually improve their score by paying the loan back according to the terms and using an installment payment.” He concluded, “Is a cash advance a perfect solution? No. Is it a good solution for someone in a bad situation that needs quick cash to prevent further financial damage? Yes. And that’s what bothers me most about the critics. They point out the negatives, but never the positives.”

I guess in the end, what will silence the critics and drive the demand for and success of these products is customer satisfaction and positive feedback.

Visit www.cashadvanceusa.net for more information.

Media Contact: Mark Miller, Cash Advance USA Ltd, (512) 571-3828, info@cashadvanceusa.net

News distributed by PR Newswire iReach: https://ireach.prnewswire.com

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.biz – AARP opposes payday lending bill | newsobserver.com blogs

AARP of North Carolina has lined up as an opponent of a bill introduced in the state Senate that would revive payday lending.

Doug Dickerson, AARP’s state director, recently wrote a letter to the sponsors of Senate Bill 89 urging them to reconsider their stance.

“AARP is concerned about the effect that payday loans have on the lives of indigent senior citizens, struggling families and the cash-straped unemployed and under-employed,” Dickerson wrote. “This legislation would legalize high-interest payday loans that by design keep borrowers in debt.”

Dickerson also argues that payday lending is counter-productive from a macroeconomic point of view..

“Evidence shows that borrowers in payday loans spend less on other goods and services because they are spending hundreds of dollars to pay off their debt to out-of-state lenders,” he wrote.

AARP officials couldn’t immediately be reached for additional comment. The organization is a long-time foe of payday lending in North Carolina, which the state outlawed in 2001 and managed to eradicate in 2006.

The exception came in 2011, when Regions Bank took advantage of a legal loophole to launch a loan that critics claimed was a payday loan; Regions Bank, which insisted it wasn’t a payday loan at all, stopped offering the loans last month after being pressured by Attorney General Roy Cooper’s office.

Primary bill sponsor Sen. Jerry Tillman, a Republican from Archdale, has argued that although his bill would revive payday lending in the state, it contains safeguards that protects consumers from the abusive payday loans that the state prohibited more than a decade ago. But that argument hasn’t gained any traction with advocacy groups for consumers and the poor.

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Regions Bank Stops Selling Payday Loans in North Carolina …

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Regions Bank has halted payday lending in the state of North Carolina, according to the Center for Responsible Lending.

Payday loans, known for their extremely high interest rates, have been banned from North Carolina for more than a decade. However, under a federal banking law, Regions Bank was able to offer such loans, the CRL said.

After much criticism from consumer advocates and various state agencies, the bank has pulled the product.

“Especially in the wake of the bad lending that led to the financial crisis, banks should understand that the last thing we need is destructive loans that drag cash-strapped families down even further,” said Jeff Shaw of the North Carolina Justice Center in a prepared statement.

In the Article

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Regions Bank

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Consumer Advocates: Banks Bringing Back Payday Loans

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Home > Tools & Resources > Headlines > Consumer Advocates: Banks Bringing Back Payday Loans

Consumer Advocates: Banks Bringing Back Payday Loans

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WRAL.com
August 31, 2012
Binker, Mark

Although North Carolina outlawed payday lending over a decade ago, the state is again seeing the short-term, high-interest loans — this time from banks. Alabama-based Regions Bank offers a product called “Regions Ready Advance,” which lets consumers borrow up to $500 by pledging their next direct deposit. “If they weren’t a bank, they wouldn’t be able to offer this product in North Carolina,” said Chris Kukla, senior vice president at the Center for Responsible Lending (CRL). Kukla says the effective interest rates for Ready Advance loans could amount to 365 percent annually. However, the bank says that the product is essentially a small-dollar line of credit and does not fit the term “payday loan.” North Carolina allowed payday loans from 1997 until 2001, but lawmakers passed legislation that authorized the store-front shops to expire. The fees, though usually small, amounted to annual percentage rates that exceeded North Carolina usury laws. Regions Bank began offering its Ready Advance product 18 months ago, essentially breaking a de facto embargo on the practice. SunTrust, a much larger bank, is considering a similar product. Fees for payday products were typically $16 for every $100 borrowed, compared to Regions’ Ready Advance product, which charges $10 per $100. Although that seems like a small amount, CRL says that it amounts to an effective annual percentage rate of 365 percent. Kukla said that consumers have better options, such as a low-cost, small-dollar loan from the N.C. Employee’s Credit Union, which charges only a few dollars upfront. Across the country, regulators like the Consumer Finance Protection Bureau are noticing this trend of bank products that are similar to payday loans, but most banks operate under state banking laws rather than federal regulators.
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IRP Poverty Dispatch » Payday Lending

Regions, Courting the Underbanked, Defends Payday Loans, By Maria Aspan, June 18, 2012, American Banker: “For banks trying to serve more low-income customers, Regions Financial (RF) could become both a shining example and a cautionary tale. The Birmingham, Ala., bank has spent the past year trying to attract the poor, the young, immigrants and other types of customers whom most banks have long ignored. It has rolled out check-cashing services, prepaid cards and payday loans, and it is expanding those services; last week, a senior executive announced plans to offer prepaid cardholders savings accounts with matching fund contributions and check-imaging technology for faster deposits. As Regions actively courts the long-ignored underbanked population, it has faced both praise and criticism. Wells Fargo (WFC) and a handful of other banks also offer such products, and Regions’ new “Now Banking” services are pretty familiar to anyone who has ever walked into a Western Union (WU) or a payday lender office. . .”

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FDIC Investigating Bank-Originated Payday Loans

Federal regulators are launching an investigation into a shadowy practice that banks don’t like to advertise: inhouse payday loans. These high-interest short-term loans — once only offered at storefront corner shops and check cashiers — are now are now finding a home alongside an increasing number of checking accounts.

“The FDIC is deeply concerned about these continued reports of banks engaging in payday lending and the expansion of payday lending activities under third-party arrangements,” Martin Gruenberg, acting chairman of the FDIC, told Americans for Financial Reform, a consumer lobby group earlier this week.

Big banks are increasingly offering the types of services that typically have been available through storefront lenders or check cashiers. Bank-issued payday loans are rarely advertised, however, according to banking industry sources.

“You’re never going to walk into a store and see a poster about this product,” Richelle Mesnick, a spokeswoman from Wells Fargo told Main Street, a personal finance publication, earlier this year. “It is designed to get a customer through an emergency situation.”

Gruenberg said the FDIC would investigate banks that make payday loans and expressed concern over the use of outside software used to administer them in a May 29 letter to the consumer group.

The letter was a response to a February petition from Americans for Financial Reform, signed by more than 200 organizations and individuals, asking the federal regulator to stop banks from offering these services.

The petition charged that advance loans by banks, including Wells Fargo, Fifth Third, Regions and US Bank, are structured like payday loans with high interest rates and balloon payments, and undermine the law in areas where payday lending has been restricted or prohibited.

Advance deposit loans at banks allow account holders to receive a early loan on a direct deposit or paycheck. Last year Regions Bank started offering its Ready Advance product, instant loans of $50 to $500; it charges $1 for every $10 borrowed. Repayment is deducted automatically from the next occurring direct deposit. Wells Fargo offers Deposit Advance loans, charging $7.50 for every $100 borrowed, but only in select states.

For some consumers, these products might be more affordable than an bank overdraft, a service that can provide a very short float at a cost of $35 per item. Consumer advocates have also been critical of overdraft fees, which the Consumer Financial Protection Bureau is investigating.

Over the last few years banks have lost a major source of revenue in overdraft fees since customers now have to opt into overdraft protection. Banks are seeking ways to bring in revenue; they haveraised prices on checking accounts and overdraft fees and added more fee-based services aimed at low-income customers.

Storefront payday lending has become an increasingly political issue for cities and states. Last month, San Jose, Calif., became the largest city in America to limit storefront payday lenders — joining the ranks of dozens of other cities and states that have taken steps to restrict the practice.

Kathleen Day, a spokeswoman for the Center for Responsible Lending, said the FDIC’s investigation is significant in the push for stronger consumer protections for the controversial lending practice.

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