Bailed-Out Banks Finance 'Legalized Loan Shark' Payday Lenders, Says New Report
Big banks that received TARP bailout money are funding payday lenders -- companies Senator Dick Durbin (D - Ill.) termed "bottom feeders" -- and which charge high interest rates and fees for short-term loans, according to a report released Tuesday.
The banks, which include Wells Fargo, Bank of America and JP Morgan, currently provide roughly $1.5 billion in credit lines to publicly-held payday loan companies and between $2.5 to $3 billion to the larger payday loan industry, says the report, which was issued jointly by community group network National People's Action and non-partisan watchdog Public Accountability Initiative.
The payday lenders, including Advance America, Cash America and ACE Cash Express, which allow customers to borrow against future paychecks, and which, according to the report, charge an average interest rate of 455 percent on top of fees of $15-18 per $100 loaned, often depend on the big banks' financing for their business.
"The very same banks that helped tank the economy and then needed hundreds of billions of dollars in taxpayer-funded bailouts are now aiding the bottom-feeders of the financial industry, as they seek--the payday lenders--to strip even more wealth away from everyday Americans," NPA executive director George Goehl, who also called payday lending "legalized loan sharking," said in a telephone press conference. "If Al Capone was alive today you might even get a better loan from him." (Goehl is also a HuffPost blogger)
The report, called "The Predators' Creditors," which features a picture of three sharks on the cover, says that some banks abstain from business with payday lenders because of what Advance America itself calls "reputational risks." The report also notes, though, that some of these payday lenders have ties to Wall Street. For example, the board of Advance America includes former executives from Bank of America, Morgan Stanley and Credit Suisse.
PAI co-director Kevin Connor, who co-authored the report, said in the press conference that big banks are attracted to the payday loan industry because "Americans were losing their jobs and homes in record numbers but they still had their family treasure to borrow against"
Connor also noted that the big banks themselves pay close to zero interest when they borrow from the Fed, a stark contrast to the high interest rates paid by consumers.
NPA and PAI are calling for an end to these credit lines from banks. Goehl said a protest campaign will launch today in Ohio and continue in Iowa, Kansas, Missouri and Illinois through next week, culminating in a meeting of the organizers in Chicago. "This report is really the beginning, not the end," he said.