Blue Chip Banks, Predatory Loans

Think of predatory lending and you probably think of pawn shops and check cashing stores in run down strip malls in poor neighborhoods. 

Time to expand your thinking—like, say, to include the fancy office tower in downtown San Francisco that houses Wells Fargo's headquarters. Wells Fargo is one of a handful of banks that offer Checking Account Advances, which can carry eye-popping interest rates. 

I learned this myself when I overdrew my bank account once and my bank, Chase, conveniently deposited extra money in my account to cover the overdraft from my "NCD Private Checking" account—which I hadn't set up myself and had never used. When I looked at my next bank statement, it stated the annual interest rate on that small loan: 253 percent!

This only happened to me once, but apparently it's pretty common for some strapped bank customers to rely on these loans—which can have even higher interest rates than my loan did—to make ends meet. It's worth recalling that, once upon a time, lenders could face charges in the U.S. for this kind of brazen usury.

Now, finally, banking regulators are poised to take action against blue chip predators. According to DealBook:

Regulators from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation are expected to clamp down on the loans, which carry interest rates that can soar above 300 percent, by the end of the week, these people said. . . . 

The regulators are expected to impose more stringent requirements on the loans. Before making a loan, for example, banks will have to assess a consumer’s ability to repay the money.

Banking authorities are also expected to institute a mandatory cooling-off period of 30 days between loans — a reform intended to halt what consumer advocates call a debt spiral of borrowers taking out fresh loans to cover their outstanding debt. As part of that, banks will not be able to extend a new loan until a borrower has paid off any previous ones.

The Consumer Financial Protection Bureau has played an important role in bringing attention to this practice–offering yet one more reminder of the value of an agency that Republicans remain determined to kill.