Big Banks Bankroll PayDay Lenders, Says New Report

Charlene Crowell |

Entitled The Predators Creditors, the report traces connections between the largestpayday lenders and Wall

Street banks. Report findings span financing arrangements, leadership ties, investments, and shared practices. It is a joint publication from the National Peoples Action (NPA), a network of community power organizations across the country that work together for economic and racial justice, and Public Accountability Initiative (PIA), a nonprofit, nonpartisan watchdog organization that publishes investigative reports.

In a recent Los Angeles Times interview, George Goehl, NPA executive director, spoke to the developments that led to the new report.

Americans have seen their assets dwindle and dwindle. We cannot have the big banks that we helped bail out actually play a strong role in continuing to strip wealth away from ordinary Americans.

The report found that while small businesses and individuals have struggled to get affordable loans, a significant portion of 2008 taxpayer bailouts to large Wall Street banks were used for the benefit of payday lenders. In fact, a few big bailed out banks that also heavily finance major payday lenders received $105 billion in TARP (Troubled Asset Relief Program) funds. In just one year, 2009, payday lenders paid these banks $70 million in interest. That amount was according to the report, a sign of how much banks are profiting by extending credit to these companies.

While the report notes that not all banks lend to the payday industry, there are strong financial connections with many of the nations largest banks such as Wells Fargo that was found to lend more to payday loan companies than any other big bank. Other banks cited in the report were Bank of America, Credit Suisse, JP Morgan Chase, Fifth Third, Union Bank of California, and US Bank.

Creditors Predators also found that major banks and their subsidiaries have begun investing in the industry. According to the report, as of June 30, 2010, Wells Fargo had a $52 million investment in Dollar Financial. Banks also benefited other large payday lenders such as Advance America, Cash America, and EZCorp.

Additionally, the report details how several current and former executives at major Wall Street banks hold leadership roles with some of the largest payday lenders.

If one considers the dual developments of financial de-regulation coupled with generous bank financing, the rapid payday lending industry growth becomes more understandable. In 1995, there were 2,000 payday stores nationwide. Today, there are 20,611 stores nationwide, as common as McDonalds and Burger King Restaurants.

For Uriah King, CRLs vice-president for state policy, there is also a broader economic question to consider.

Is it really helping our economy when the federal government is lending at less than one percent and struggling families are borrowing at over 400 percent, asked King? How in the world are those consumers going to lead us out of the potential double dip recession?

Predators Creditors reached a similar conclusion. Instead of wading further into the business of predatory payday lending, big banks need to stop financing these lenders and instead lend to businesses and individuals that create wealth, rather than destroy it, concludes the report.

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