Thursday, May 2, 2013

Federal Regulators Continue Applying Heat On Big Banksters For Targeting Cash-Strapped Consumers With Payday-Style Loans

The New York Times reports:

  • Federal regulators on Thursday admonished some of the nation’s largest banks for offering payday-style loans, short-term costly credit tied to customers’ checking accounts.

    The guidance from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation urged the banks, including Wells Fargo and U.S. Bank, to ensure that borrowers can repay the loans, which otherwise can mire customers in debt and result in a slew of fees.

    Banks offer the loans linked to checking accounts with the understanding that the lender automatically withdraws the full cost of the loan when it is due. Factoring in fees, the loans, called deposit advances, can come with interest rates that exceed 300 percent.

    The moves on Thursday come as state and federal officials ratchet up their efforts to clamp down on payday lending at storefronts and at large banks. Across the nation, 15 states impose strict interest caps on the loans, effectively banishing payday lenders.

    On Wednesday, the Consumer Financial Protection Bureau, which has been examining the loans, issued a report that found the payday and direct-deposit loans can quickly morph from short-term credit into a seemingly unending burden for low-income customers. “For too many consumers, payday and deposit advance loans are debt traps,” Richard Cordray, the agency’s director, said in a statement when the report was issued.

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