Bringing the Economy Home

Regulators Zero In On Short-Term, High-Interest Loans

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There are more than 220 payday lenders in Idaho.

More than a dozen states have put caps on payday loan interest rates, limiting and in some cases shutting down the industry in many states.

The pitch to cap rates in Idaho hasn’t been successful. Still, big banks have started offering short-term, high-interest loans to make up for the loss in the payday lending industry.

The Wall Street Journal this week summed up how those loans work, and which banks offer them.

Direct-deposit advances, which are offered by U.S. Bancorp, USB +1.08% Wells Fargo WFC +1.09% & Co., Regions Financial Corp., RF +3.62% and Fifth Third Bancorp FITB +1.39% allow customers to request a cash advance online or by phone and obtain an instant line of credit, usually up to $500. When the customer’s next paycheck is deposited, the bank repays itself by deducting the loan balance plus any fees. –

The Journal reports banks have been barred from offering payday loans since 2000, so they’ve begun to offer these direct-deposit advances instead.

Yesterday, federal regulators detailed problems with those loans and called on banks to limit the practice.  However, they stopped short of banning it.

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. – The New York Times

During U.S. Bancorp’s annual shareholders meeting in Boise last week, protesters gathered in part to speak out against the bank’s payday-style loans.


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