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Big Banks Saying No To Payday Loans

niallrice_z5511evw's picture

As you very well know, payday loans are big business. But it seems as though more and more banks are jumping off the bandwagon. Just last week four of the biggest banks in the United States decided they would no longer be offering payday loans to borrowers. The banks are Regions Bank, US Bank, Fifth Third Bank and Wells Fargo which is the largest bank to offer this type of loan.

This announcement comes on the heels of the regulatory guidance that was finalized in late 2013 by the Office of the Comptroller of the Currency. It is a federal guideline that advises certain banks to stop making payday loans to customers who they know can't afford to pay it back. The Federal Reserve also made this same advisory to the banks it supervises. This is because payday loans present a huge financial risk for consumers who use them.

And while Wells Fargo has jumped off the bandwagon, Bank of America is still undecided. Wells Fargo and Bank of America are the two largest banks to finance payday lenders.

Regions Bank ended their payday loan services in 2013. Had they kept it going they would have been able to charge consumers as much as 390% interest on payday loans thanks to a bill filed by North Carolina Senator Jerry Tillman. This is the very reason The Office of the Controller of the Currency and The Federal Reserve have advised against such loans. At a rate of 390% no one can afford to pay them back. Many considered the bill being file by Senator Tillman as legalized loan sharking.

He was basically trying to make it legal to rip consumers off. In 2001 a bill was passed in North Carolina that forbid cash advance services such as payday loans from going on in the state. This came only after pressure from consumer groups. These groups believed payday loan companies prey on low income consumers due to their lack of access to mainline banking services. The problem is federal law makes it possible for out of state banks to do business with residents in the state. So people are still being taken advantage of by this type of practice.

So far only four banks have decided to no longer offer payday loans to consumers. The good news is they are four of the largest who were offering this type of service. However, as more laws are passed and consumers become more educated I expect other banks will follow suit.

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