How much did banks like Wells Fargo and US Bank make off of deposit advance loans?

profits

Last week, US Bank and Wells Fargo, two banks that have offered high-interest, short-term loans to their customers that closely resemble payday loans, announced they would no longer make the loans.

While advocates cheered the news because it means fewer people will be stuck in debt traps of trying to pay back these loans, it has been unclear until now just how profitable these loans are for the banks.

During a hearing held by the Senate Select Committee on Aging, this issue was raised by Senators.  (Hearing Focuses on Direct Deposit Advances, are they different than payday loans?)

Senator Bill Nelson (D-FL), the Chair of the Committee, highlighted the relatively low risk involved in making these loans when the customer’s income is from Social Security. Senator Nelson remarked, “As long as there’s a Social Security Administration, that money will be coming in.”

On Wednesday, the CEO of US Bancorp (parent company of US Bank) revealed just how profitable these loans have been.  The Wall Street Journal (U.S. Bancorp Profit Grows) reports that US Bank’s CEO commented that the bank earned $50 million a quarter from the loans.

Update: A July 28, 2014 article in the Cincinnati Business Courier cites the $30 million that Fifth Third Bank made from these loans in Q2, 2014  (Three reasons analyst says Fifth Third shares should jump)

While all of the banks that make these deposit advance loans have announced they will no longer make them (bowing to regulator and advocate pressure), there are several important pending issues:

1) How will customers who currently have these loans be treated?   One possibility would be to lower their interest rates to 36% APR, a reasonable (if expensive) rate already in place for our active-duty military, and to also extend the loan terms so that people can pay off the loan in smaller payments and rebuild their financial security.

2) Will the banks try to offer a replacement product?  Any new products could be an opportunity for banks to regain customers they are currently losing to storefront payday lenders, check-cashers, and online payday lenders.   If the banks were to provide safe, affordable, alternatives, it could also go a long way towards rebuilding trust with Americans.

If you’d like to learn more about bank payday loans, please visit these CRC resources:

1) Congressional testimony: In July 2013, Annette Smith testified to the Senate Select Committee about her experience paying almost $3,000 in fees as she renewed a $500 Wells Fargo loan over the course of five years.

2) US Bank CRA exam: In June 2013, CRC authored a letter to Office of the Comptroller of the Currency during US Bank’s most recent CRA exam, citing concerns with the bank’s “Checking Account Advance.”

3) Research on Payday loans: A June 2013 report by CRC and national partners in New York, North Carolina, and Illinois, focused on the dangers of payday loans (offered by banks and storefront lenders).

4) Comment on proposed rules: In May 2013, CRC and 62 members and allies sent a letter to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, providing input on proposed rules about consumer safeguards for these types of loans.

5) Wells Fargo Shareholder meeting: In April 2013, CRC and national partners traveled to Utah to attend Wells Fargo’s annual shareholder meeting, where Annette Smith, a Wells Fargo customer, told the CEO about her bad experience with the bank’s direct deposit advance loan.

6) Wells Fargo CRA Exam: In November 2012 CRC commented on Wells Fargo’s CRA exam, highlighting the direct deposit advance. Over 2,700 people contacted the OCC, calling on the bank regulator to give Wells Fargo a “failing grade” on its CRA exam.

Homeowner Bill of Rights Training for Attorneys Representing Homeowners and Tenants

Are you a consumer attorney who works with homeowners or tenants affected by foreclosure?

The HBOR Collaborative presents:

REPRESENTING HOMEOWNERS & TENANTS UNDER

THE HOMEOWNER BILL OF RIGHTS

This free training will be held at:

THE UNITARIAN UNIVERSALIST CHURCH OF FRESNO

2672 E. Alluvial Avenue, Fresno, CA

REGISTRATION NOW OPEN: REGISTRATION PAGE

TUESDAY FEBRUARY 25, 2014

Update:  A training has also been added in Ontario, CA, on March 3rd and 4th at the University of La Verne, College of Law.  There is a one-day training for attorneys who work with tenants (Monday) or two-day for attorneys who work with homeowners: Registration.

The HBOR Collaborative presents a free all-day training on the nuts and bolts of representing tenants and homeowners under California’s Homeowner Bill of Rights (HBOR). The training will cover HBOR basics and provide practical tips for representing clients. HBOR became effective on January 1, 2013 and codifies the broad intentions of the National Mortgage Settlement’s pre-foreclosure protections. It also provides tenants in foreclosed properties with a host of substantive and procedural protections. The training will cover the interplay of HBOR with NMS, CFPB servicing rules, and the Protecting Tenants at Foreclosure Act. We will also discuss HBOR’s attorney fee provisions.  Registration information will be available soon.

5 Hours of MCLE Credit

Lunch will be provided.

CLICK HERE TO GO TO THE REGISTRATION PAGE

Watch your inbox for a save the date for our next training in the Inland Empire—coming soon.

The HBOR Collaborative, a partnership of four organizations, National Housing Law Project, National Consumer Law Center, Tenants Together and Western Center on Law and Poverty, offers free training, technical assistance, litigation support, and legal resources to California’s consumer attorneys and the judiciary on all aspects of the new California Homeowner Bill of Rights, including its tenant protections. The goal of the Collaborative is to ensure that California’s homeowners and tenants receive the intended benefits secured for them under the Homeowner Bill of Rights by providing legal representation with a broad array of support services and practice resources.

To contact the HBOR Collaborative team or for more information on our services for attorneys, please visit http://calhbor.org/

The HBOR Collaborative and its services, including this free training for attorneys, are funded by a grant from the Office of the Attorney General of California from the National Mortgage Settlement to assist California consumers.

Intimidated by Banks: A GTA Student Perspective

Editor’s note: The blog below is cross-posted from Game Theory Academy’s blog, as part of an American Banker BANKTHINK series on what customers want from their banks.

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Intimidated by Banks: A GTA Student Perspective

I opened my very first bank account during my sophomore year in high school, when I was receiving a paycheck ranging from $7 to $30 every two weeks for my job as a tutor at my school. I opened the account because my mother read an advertisement outside a bank that claimed to give $100 to anyone opening a new bank account during a certain time period if they put $50 in the account.

As the daughter of two very hard working parents, a sibling to five others, and a minority student from a low-income household, I saw this incentive as a great way for me to save a little cash for school necessities while also being able to save what I was earning from tutoring. However, when I went to the bank to open my new account that I so long anticipated, I was told that the $100 only applied to customers who were 18 or older. What a scam, I thought!

My first interaction with a bank was not at all satisfying because I felt that it did not provide detailed information that was customer-friendly, easy to read and interpret, since my parents misunderstood and so did other Hispanic customers. Later on when I went to cash my checks, I had to wait in line because I was unsure about how to use the ATM machines. I didn’t want to look dumb in front a large line, so I would rush to the bank after school and get there just in time before it closed. I wish that banks would show first-time customers how to work the machines. I felt embarrassed trying something new, five minutes before the bank closes, with a crowd behind me. If someone had taken the time to show me how the ATM machine worked, this could have been avoided.

Netsay Ramos is a student in Oakland, California, and an alumna of Game Theory Academy

Checking Deposit Advance Loans Are Dead in California- A Win for Consumers

Last Friday both Wells Fargo and US Bank announced that they were no longer going to provide their version of payday loans– so-called deposit advance loans.  These loans are provided to bank customers through their checking accounts.  While they may seem like a harmless service, their interest rates tell another story.

The Consumer Financial Protection Bureau released a landmark study in April 2013 on payday loans and bank deposit advance loans.  The authors report:

The median duration of advance balance episodes in our sample was 12 days. Using this duration, we can calculate an APR for different fees that may be charged for an advance. For example, a typical fee is $10 per $100 borrowed. This fee would imply an APR of 304% given a 12-day duration. A hypothetical lower fee of $5 per $100 advanced would yield an APR of 152%, while a hypothetical higher fee of $15 per $100 advanced and would yield an APR of 456% with the same 12-day term. Thus, the APR will vary significantly depending on the duration of a particular advance balance episode and the fee charged by an individual institution.

As you can see, these high-interest loans, with their short repayment periods, are as harmful as payday loans offered by storefront lenders.

The California Reinvestment Coalition has worked to limit the payday lending industry throughout California, through state legislative work and through working with local community leaders to help enact ordinances restricting the growth of payday lending.  For example, as part of the Coalition Against Payday Predatorsc, we worked with coalition partners, community organizations, and consumers to illustrate the damage caused by payday loans in cities like Sunnyvale and Gilroy, both of which have passed ordinances restricting the future growth of payday lenders.

Looking ahead to 2014, CRC will be working with our state and national partners to continue the momentum against these predatory loans.  The Consumer Financial Protection Bureau is expected to write rules governing payday lending this year and CRC members, allies, and consumers will strongly encourage the CFPB to consider consumer safeguards to protect people from the payday loan debt trap.

Do you currently have a payday loan?  Are you having issues with your lender harassing you?  If so, consider filling out a complaint with the Consumer Financial Protection Bureau.  The more they hear about consumer abuses, the more likely they are to implement strong consumer safeguards in their new rules.  You can fill out a complaint here: CFPB Complaint website.

Are you interested in learning more about advocacy against payday lending?  Contact CRC’s Payday Loan Organizer, Liana Molina:  liana@calreinvest.org.