The Center for Responsible Lending (CRL) released a new installment in its State of Lending series entitled Bank Payday Lending last September. The report noted several troubling trends regarding short-term, high-interest financial products offered by a number of well-known national and regional banks. Though offered by established financial institutions, high-interest bank loans can be just as damaging to a family’s financial wellbeing as those offered by storefront payday lenders. Consider the following:
- The average annual percentage rate (APR) for bank payday loans is 225 to 300 percent.
- Customers who use bank payday loan products are twice as likely to incur overdraft fees.
- In 2011, the median bank payday loan borrower took out 13.5 loans and was in loan debt at least part of six months annually.
Fortunately, agencies like the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve have increased their scrutiny of bank payday loans and issued new guidance that directs banks to end abusive lending practices. Banks are responding to these new directives—according to a recent CRL press release, U.S. Bank, Regions Bank, Fifth Third Bank, and Wells Fargo have all eliminated payday lending from their financial services.
If you would like to learn more about how bank payday lending works and why it’s harmful, you can access a free CRL webinar on the subject here.