Published: May 2013

Payday loans often result in destructive cycle

Provisions are needed to address a central problem with payday lending: lenders’ failure to verify the borrower’s ability to repay the loan, and meet other expenses, without reborrowing, leading to a destructive cycle of repeat loans.

Consumer Action joins advocates in asking the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)
to create provisions that are urgently needed to address risky bank payday lending. Many of the undersigned groups have expressed concerns about bank payday lending to the Agencies, as well as to the Federal Reserve Board, on previous occasions. We have emphasized banks’ failure to verify the borrower’s ability to repay the loan, and meet other expenses, without reborrowing. Recent research has left no doubt that this is the reality: The Consumer Financial Protection Bureau’s analysis of thousands of bank payday loans found that banks put borrowers into an average of 14 loans annually and keep them indebted for a significant portion of the year.

Research has long shown that payday loans cause serious financial harm to borrowers, including increased likelihood of bankruptcy, paying credit card debts and other bills late, delayed medical care, and loss of basic banking privileges because of repeated overdrafts.iv Payday lending has a particularly adverse impact on African Americans and Latinos, as a disproportionate share of payday borrowers come from communities of color. In addition, a large number of bank payday borrowers are Social Security recipients, whose benefits banks take for loan repayment before borrowers can use those funds for healthcare, prescription medicines, or other critical expenses.

Other Organizations

AARP | Americans for Financial Reform | Consumer Action | Consumers Union | Greenlining Institute | NAACP | National Community Reinvestment Coalition | Public Citizen | Sargent Shriver National Center on Poverty Law | The Leadership Conference on Civil and Human Rights Woodstock Institute

More Information

For more information, please visit AFR's website.

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Payday loans often result in destructive cycle   (AFR_OCC_FDIC_BankPaydayCommentLetter5-30-13.pdf)