Dear Bank Board of Trustees:
In the years leading up to 2013, a handful of banks (Wells Fargo, Regions, Fifth Third, US Bank, Bank of Oklahoma, and Guaranty Bank) were making unaffordable, 300%-interest payday loans, which the banks called “deposit advance” loans. This debt trap product left customers in a worse financial position than they were before, and it was widely condemned by community and civil rights organizations, faith and military leaders, and many state and federal lawmakers.

In 2013, the FDIC and OCC issued guidance aimed at curbing the harms of these debt trap loans. At the same time, the Federal Reserve issued a supervisory statement to the same end. For the most part, the banks responded by discontinuing their products. But today, banks are attacking the FDIC/OCC protections that have prevented banks from trapping people in unaffordable payday loans.  

We write to ask for the bank’s pledge that it will not begin making payday loans, and that it will oppose the rollback of the regulatory guidance, which would make it easier for other banks to do so.

In April of this year, the American Bankers Association submitted a white paper to the U.S. Treasury Department calling for repeal of the OCC/FDIC guidance, and a measure has been floated in Congress to do the same. These efforts come despite overwhelming evidence that “deposit advance” loans worked just like loans from payday lender storefronts. The bank advanced the customer a loan that the customer could not afford and repaid itself the full loan amount, plus triple-digit interest, from the customer’s next direct deposit. This repayment left the customer without needed funds to make it to the next payday, leading to a cycle of unaffordable, repeat loans.

Research has long shown that, despite so-called lender “protections” like “cooling-off periods,” payday loans create debt traps that cause severe harm to borrowers, including delinquency and default, overdraft and non-sufficient funds fees, increased difficulty paying mortgages, rent, and other bills, loss of checking accounts, and bankruptcy. These loans disproportionately impact communities of color, leaving them more disproportionately underserved by the banking mainstream. Payday lending by banks also undermines state law in the states that have prohibited or imposed meaningful restrictions on payday loans in recent years, or that have never allowed payday loans to be part of their marketplace.
Again, we urge the bank to pledge that it will not enter the payday loan business, and to oppose the rollback of the important consumer protections that keep other banks from doing so. We appreciate your consideration and hope to receive your commitment.

Sincerely,




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For more information, see the recent policy brief by the Center for Responsible Lending, Been There; Done That: Banks Should Stay Out of Payday Lending (July 2017), available at http://bit.ly/2ueBmCI.

Here is OCC reg:  https://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-69.html
 
Here is FDIC reg: https://www.fdic.gov/news/news/press/2013/pr13105.html