Payday Lending – Wells Fargo (2013)
Outcome: Omitted by SEC
Predatory loan products such as payday loans have received significant public criticism for their high interest rates and rates of repeat borrowing. Our company is currently extending high-cost direct deposit advances that resemble payday loans and could expose customers to a costly “debt trap.” We believe these advances present serious hazards to Wells Fargo most financially vulnerable customers and to the company itself.
Wells Fargo charges $7.50 for each $100 borrowed through direct deposit advance. Loans are repaid automatically, in full, out of the customer’s next direct deposit. Research from the Center for Responsible Lending demonstrates that the typical user of this type of product pays 365%/270% APR on a 10 day loan and remains indebted for 175 days out of the year.
This lending may pose significant regulatory, legal, and reputational risks to Wells Fargo. Regulators have repeatedly warned banks to avoid making or facilitating payday loans that result in long-term debt. The FDIC has begun an inquiry into payday lending practices and the Consumer Financial Protection Bureau has begun examination of payday-type, short-term lending at both payday storefronts and banks. Wells Fargo is one of only four major banks exposed to these risks, as the majority of state and national banks do not offer this type of product line. In recent years, a host of predatory
lending practices have cost households billions in fees and catalyzed instability in both the housing and financial markets. Payday lending can perpetuate this instability, draining productive resources from the bank’s own customer base and the economy as a whole.
Wells Fargo has disclosed information to its shareholders and on its website about this product but will not share the necessary information for shareholders to determine its suitability for vulnerable customers.
Shareholders request the Board of Directors prepare a report discussing the adequacy of the company’s policies in addressing the social and financial impacts of direct deposit advance lending described above. Such a report should be prepared at a reasonable cost, omitting proprietary information and not conceding or forfeiting any issue in litigation related to these products.
We believe responsible practices that are designed to strengthen rather than weaken customers’ financial health are in the best interest of our company, its clients, the communities it operates in, and our economy.
The FDIC has stated that “providing high-cost, short-term credit on a recurring basis to customers with long-term credit needs is not responsible lending, increases institutions’ credit, legal, reputational, and compliance risks; and can create a serious financial hardship for the customer.”
We believe it would be helpful if the report includes information on the frequency with which the product is used, impact of the product on overdraft fees and nonsufficient funds fees, cost to the institution, and total revenues derived from these loans. We also believe the report should include metrics to determine whether loans extended are consistent with customers’ ability to repay without repeat borrowing.