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Garofalo reports: "In fact, the Center for Responsible Lending has found 76 percent of payday loan volume (and $3.5 billion in annual fees) is due to 'churning,' which is repeat borrowing by customers who paid off their loan, but because of the interest, require another loan before their next paycheck. And according to Credit Slips’ Nathalie Martin, a professor at the University of New Mexico, the nation’s biggest banks are, in a big way, financing this predatory lending..."

A growing number of credit unions around the country are offering payday loans and competing with traditional payday loan businesses, like those shown here in Phoenix, 05/27/11. (photo: Ross D. Franklin/AP)
A growing number of credit unions around the country are offering payday loans and competing with traditional payday loan businesses, like those shown here in Phoenix, 05/27/11. (photo: Ross D. Franklin/AP)



Big Banks Finance Billions in Predatory Payday Lending

By Pat Garofalo, ThinkProgress

06 December 11

 

ne of the more pernicious forms of predatory lending is payday lending, which involves firms giving usually low-income workers very short-term, high-interest loans in order to help them pay for necessities until they receive their next paycheck. While this may sound like a valuable service, the interest rates on the loans are so high that many borrowers get caught in a cycle in which they're constantly taking out new loans to cover the new bills that they can no longer afford, due to having paid back the last loan.

In fact, the Center for Responsible Lending has found 76 percent of payday loan volume (and $3.5 billion in annual fees) is due to "churning," which is repeat borrowing by customers who paid off their loan, but because of the interest, require another loan before their next paycheck. And according to Credit Slips' Nathalie Martin, a professor at the University of New Mexico, the nation's biggest banks are, in a big way, financing this predatory lending:

- Major banks provide over $1.5 Billion in credit available to fund major payday lending companies. -The major banks funding payday lending include Wells Fargo, Bank of America, US Bank, JP Morgan Bank, and National City (PNC Financial Services Group).

-All together, the major banks directly finance the loans and operations of (at minimum) 38% of the entire payday lending industry, based on store locations.

-The major banks indirectly fund approximately 450,000 payday loans per year totaling $16.4 Billion in short-term payday loans.

-Wells Fargo is a major financier of payday lending and is involved with financing companies that operate one third (32%) of the entire payday lending industry, based on store locations.

-All of these above mentioned banks received TARP bailout funds in 2008-09 and have benefited from accessing capital at exceptionally low interest rates from the Federal Reserve.

About 120 million payday loans are made annually in the U.S., with an average interest rate of 455 percent. One of the tasks of the new Consumer Financial Protection Bureau will be to get a handle on this sort of lending, once the Bureau gets past Republican obstruction, and it seems like chasing down payday lenders is going to lead the CFPB right to the front doors of some of the nation's financial behemoths.

 

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+12 # MainStreetMentor 2011-12-06 17:44
It's what financial predators do! Wall Street residents have been blood-sucking financial raping predators since the beginning of the 20th Century! This is but the newest "avenue" of Greed. Where are the backbones in our Congress to totally eradicate these kinds of dastardly behavior and trampling of ethics?
 
 
+2 # overanddone 2011-12-07 04:56
The link is to a financial times article detailing American pay day lenders setting up shop in the UK.
http://www.ft.com/intl/cms/s/0/d005abc0-1ff7-11e1-8462-00144feabdc0.html?ftcamp=rss&ftcamp=crm/email/2011126/nbe/InTodaysFT/product#axzz1fqSCBLjX
US exports alive and well.
 
 
+6 # RLF 2011-12-07 05:41
My bank recently let my personal info get stolen and money taken from my acct. We then had to open a new acct. They would not let me keep the grandfathered terms of my old acct. when I was forced to open a new acct. Smells fishy to me.
 
 
+7 # BradFromSalem 2011-12-07 06:57
Why don't these folks get in touch with their local Mafia connection? Their rates are much more reasonable plus if you fall short they may allow you to pay off your debt by doing them a favor to help pay off your debt. They also provide investment opportunities that are equal to or exceed the returns you can get from Wall Street.

Too bad that the mob has moved to legitimate fields leaving loan sharking to the banks and gambling to the states.
 
 
+8 # 666 2011-12-07 07:49
nationalize the banks! wipe out consumer debt!
 
 
+1 # MainStreetMentor 2011-12-07 10:26
That is certainly at least one viable option to help curtail the on-going "free rein" of Wall Street. I agree with your post.
 
 
+10 # mwd870 2011-12-07 08:05
"One of the tasks of the new Consumer Financial Protection Bureau will be to get a handle on this sort of lending, once the Bureau gets past Republican obstruction."

The Consumer Financial Protection Bureau (Elizabeth Warren's creation) could do much good. That good ol' Republican obstruction needs to be slapped down.

NEVER VOTE REPUBLICAN
 
 
+2 # MainStreetMentor 2011-12-07 10:29
Very astute observation. We'll see just how much "umph" the CFPB can exercise since Obama refused to back "soon-to-be-US- Senator" Elizabeth Warren as the Chief of CFPB. Don't know how the current leadership of that group is going to work - or if they'll work at all on behalf of middle-class Americans.
 
 
+1 # Doubter 2011-12-07 19:30
The more that is known of our whole banking system the more it conforms to the classical definitions of usury, loan sharking, fraud, swindle, malfeasance, shakedown, fleece, gyp, victimize, etc. etc. etc.
It disgusting for the pres to have put some of the main perps in charge of OUR henhouse!
"Kakutani notes that "one top banker quoted in these pages refers to [Geithner] as 'our man in Washington' for helping avert more systemic changes affecting Wall Street."
http://www.commondreams.org/view/2011/09/19-6
 
 
+1 # RMDC 2011-12-08 07:18
It used to be thought that governments existed to protect people from these predators and organized criminals. But now, the predators are inside the government creating laws that protect them. The courts rubber stamp foreclosure proceedings that are clearly fraudulent.

Why are there no usury laws? This is really outrageous.
 

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