As regulators in states across the country increasingly crack down on payday loans, the big banks that finance those businesses have come under scrutiny. A report to be released today by Durham-based Reinvestment Partners finds that Wells Fargo and Bank of America are the two biggest players funding payday lenders.
Wells Fargo has provided $1.2 billion in lines of credit and other loans to companies that make payday loans, the report states -- more than any other bank. Bank of America was No. 2 with about $664 million.
Payday loans generally refer to short-term loans that carry high interest rates and fees. Companies in Reinvestment Partners study also include refund anticipation lenders, pawn shops, and rent-to-own companies.
Wells Fargo has lent money to 13 payday loan companies, including Cash America and First Cash Financial, the report says, based on securities filings made by the companies. Bank of America was connected to 11 such companies, including Advance America. Some of the companies on the lists include firms like Jackson Hewitt, which deal primarily in tax and other services but occasionally offer payday-loan-type products.
Activists have regularly criticized both banks for their financing arrangements with the payday loan companies. Several times at recent annual shareholder meetings in Charlotte, Bank of America CEO Brian Moynihan has been asked about his bank's funding of pay day loan companies. He's responded by saying the Charlotte bank does not make payday loans.
UPDATE:
Bank of America says in a statement that it is cutting ties to the payday lending companies it once financed.
The Charlotte bank says it has not "pursued new credit relationships in the payday lending industry" for several years, and made the decision earlier this year to get out of that line of business entirely. The bank said it is ending its current relationships with such companies over time.
Wells Fargo said in a statement that the bank "provides credit to responsible companies in a variety of financial services industries." The bank regularly checks to make sure the companies it lends to are in compliance with the law.
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Monday, December 16, 2013
Wells, BofA are tops in financing payday lenders
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7 comments:
As long as the lenders they are underwriting are following the law the banks really shouldn't be the focus.
If the states want to regulate the guidelines for payday lenders -i.e. cap interest rates (which they do) that is really where the answer lies.
People don't need to get upset that someone is lending money to people who lend money at high rates to people with obliterated credit.
Anon @ 8:52 - So because the practice of loaning money to these payday lenders is legal we should just give the banks a pass on this?
Sorry, but hiding behind legality does not make the act morally or ethically right. SMH.
Anon 10:24, all 8:52 is saying is that that is how banks work. In fact, that is how all of everything works. If you want to solve any actual problem here....DON'T GO AFTER THE BANKS, GO AFTER THE ACTUAL PROBLEM AND SOLVE IT! Oh, wait, here's a popular solution: just get the federal government to sue the banks (for doing nothing illegal whatsoever) and then FORCE them to come up with a settlement number and then sit back and wait for the check. Then, a few years after that, go get more lawyers (and defendants) and then go sue Wells and BofA (AGAIN) with a discrimination lawsuit because they DID NOT lend money to people with bad credit, and they infringed upon their RIGHTS to receive payday loans. Sound familiar. You can't have it both ways errrr, maybe you can because it's been going on for awhile now.
If they weren't providing the funding we would be reading an article about the banks facing litigation for discriminating against these legal entities for refusing to provide loans.
If BofA and Wells want to loan money to payday lenders, who charge an AVERAGE interest rate of close to 400% (yes, 400% APR) (https://www.advanceamerica.net/FAQs), that's clearly within their right. Some people, including me, view that high of an interest rate as usurious, and as a result choose not to do business with these banks.
I bet banks loan a lot of money to organizations in unsavory industries. You might not agree with a company like Blackwater but they get loans from banks. Gun manufacturers, alcohol companies etc all need funding
The business of banking is about being a financial intermediary. Banks lending money to payday lenders or other legal business that meets standards for commercial loans and banking regulations is perfectly fine.
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