NETWORK objects to large banks taking up a practiced being outlawed for "payday lenders" who have been charging up to 365% interest on small, short-term loans made available to people with poor credit ratings. We, with 250 organizations and advocates, support federal action to stop banks as well as payday lenders from engaging in these unethical practices.
The Consumer Financial Protection Bureau held a hearing in New York City. Wells Fargo, a national bank, wants to bring its version of this (direct deposit advance) to New York. The state has anti-usury laws which advocates see would be violated by this. Direct Deposit Advances are usually small loans, but the payments are taken directly out of the paycheck of the borrower. Evidence is that those who have relied on payday loans got caught in a cycle of loans due to inability to pay back on time. Loan built upon loan, with the interest accumulating with each additional loan. At least payday lenders were not able to take the payments by direct deposit. Borrowers would pay back the loan, but would lack money for other necessities, leading to another loan and so on.
A sign-on letter from the 250 organizations was hand-delivered to Director Cordray at the New York City meeting.