Big banks are participating in a practice commonly associated with the use of big signs to lure vulnerable Americans.
Wells Fargo, the country's biggest bank by market value, and U.S. Bank, the ninth largest bank by assets, are helping bankroll the payday lending industry, according to a report released earlier this week by Minnesotans for a Fair Economy, an advocacy organization.
According to the report, Wells Fargo and U.S. Bank have both financed top payday lenders and extend payday loans to their own customers at sky-high interest rates: 365 percent per year for U.S. Bank and 274 percent for Wells Fargo on $500 loans.
The findings come as big banks face growing scruitiny for their payday lending activities. Richard Cordray, director of the Consumer Financial Protection Bureau, said in January that the bureau plans to look closely at big banks that make payday loans.
The nation's top consumer cop is likely zeroing in on the practice because it's often the most financially vulnerable consumers that payday lenders are targeting. About one in four bank payday borrowers are Social Security recipients, and, on average, bank payday borrowers are in debt 175 days per year, the Center for Responsible Lending found in a report last year.
Since Wells Fargo and U.S. bank are nationally chartered, they are getting around some state laws that regulate payday lenders, according to the Minneapolis Star-Tribune.
Wells Fargo and U.S. Bank also have financed some of the largest payday lenders in the country. Wells Fargo has financed Advance America (with 2,313 stores), Ace Cash Express (with 1,200 stores), Check into Cash (with 1,100 stores), Check 'N' Go (with 1,000 stores), Cash America (with 655 stores), EZ Corp. (with 450 stores), Dollar Financial/Money Mart (with 312 stores), and First Cash Financial/Cash & Go (with 226 stores), according to the Minnesota report. U.S. Bank also has financed Advance America, Cash America, and EZ Corp., the report says.
Still, Wells Fargo and U.S. Bank told the Star-Tribune on Monday that they do not engage in payday lending. They said their services are called "checking account advances" or "direct deposit advances."
Meanwhile, some states are trying to crack down on payday lenders. Some Rhode Island Democratic lawmakers are pushing to cut the maximum annual interest rate that payday lenders can charge to 36 percent from 260 percent, according to the Providence Journal.Through a proposed ballot initiative, Missouri's secretary of state also wants to cap the annual interest rate charged by payday lenders at 36 percent, according to the Kansas City Star. A county judge recently ruled that the proposed ballot initiative's summary was "inadequate," but Missouri's secretary of state plans to appeal the decision.