Great news! The two largest banks in the state have stopped offering payday loans (or as they call them “direct deposit advance loans”. I prefer to call a spade a spade.) The Washington Post does a nice job of summarizing the relevant issues here.
The writers at the Washington Post are excellent journalists, but in their effort to at least sound objective, they fail to truly capture how truly toxic these particular products are. Essentially, Wells Fargo and U.S. Bank have been competing with the seedy corner check cashing operations down on Lake Street as well as the fly-by-night internet sites that offer loans that would make a mobster blush. Although it’s hard to calculate, and Wells Fargo does a poor job of making any relevant disclosures on its website, the loans have APR’s in the range of 300-400%!
And frankly, it’s even worse when these large brick and mortar bank. At least when you go into a shop on Lake Street that sells pre-paid cell phones along with the loans they offer, you know what you’re getting into. These large banks take advantage of their veneer of respectability to lure consumers in. And the worst part? When the consumer inevitably defaults on the loan, the banks are able to exercise their right of set-off and take money right out their own customers bank account.
As the article cited above makes clear, this is a clear victory for the Consumer Financial Protection Bureau, and regulation in general. The CFPB is one of the few substantial reforms to actually come out of the oft maligned Dodd-Frank Act, and if Director Richard Cordray keeps it up, the bureau has a very good chance of living up to its charter.