New Report: Pay Day Lending Traps Borrowers in Long-Term Cycle of Debt
The report, an update of Center for Responsible Lending’s (CRL) 2011 report, Big Bank Payday Loans, provides further evidence that “pay day” and “direct deposit advances” trap low-wealth and low-income borrowers in a cycle of expensive and increasing debt, causing serious financial harm.
These are short-term balloon loans that borrowers are unable to repay in full when due. The loans carry triple-digit interest rates and lack meaningful underwriting to assess a borrower’s ability to repay.
According to the March 21, 2013 report:
• In 2011, bank payday borrowers took out an average of 19 loans.
• Bank payday borrowers were two times more likely to incur overdraft fees than bank customers as a whole.
• One of every four payday borrowers is a senior citizen receiving Social Security.
Trillium Asset Management (Trillium) has filed shareholder resolutions with Wells Fargo and Fifth Third Bank asking the banks to prepare a report discussing the adequacy of the company’s policies in addressing the social and financial impacts of direct deposit advance lending.
Earlier this month, Trillium, along with 250 national, state and local organizations and individuals, sent a letter to the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation urging the regulators to issue guidance or a rule that would put an immediate end to this product before it spreads from a handful of banks to the entire banking system.
You can download CRL’s report here.