Report: Big bank payday loans create cycle of debt


Some of the nation’s largest banks are providing short-term loans with interest rates of up to 300 percent, driving borrowers into a cycle of debt, according to a new report from the Center for Responsible Lending.

The study, due today, gives an updated look at the perils of advance-deposit loans offered by Wells Fargo, U.S. Bancorp, Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma.

Banks bristle at comparisons to storefront payday lenders, but researchers say their products carry the same abusive high-interest rates and balloon payments.

Banks market these products as short-term solutions for emergencies. But the average borrower took out at least 13 loans in 2011 and spent much of the year saddled with the debt, according to the study by the center, an advocacy group.

Critics say the structure of advance-deposit loans promotes a cycle of debt. Account holders typically pay up to $10 for every $100 borrowed, with the understanding that the loan will be repaid with their next direct deposit.

If the deposited funds are not enough to cover the loan, the bank takes whatever money comes in, triggering overdraft fees and additional interest.

Consumer advocates are concerned that federally regulated banks can sidestep stricter state laws that govern payday lenders. At least 15 states have banned the service, while several others have imposed tougher laws to limit the number of loans that can be made and the interest rates.


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