FDIC Guidelines Turn up the Heat on Rent-a-Bank Payday Lending

For immediate release
Contact: Jean Ann Fox, 757-867-7523

 July 2, 2003

 Washington, D.C.-Consumer Federation of America (CFA) noted that the Federal Deposit Insurance Corporation (FDIC) guidelines issued today will make it much harder for state-chartered banks to help payday lenders evade state usury and small loan laws.

 Payday loans are short-term cash advances based on personal checks held for future deposit. These loans cost an average of 470% in annual interest and often lead to perpetual debt and coercive collection tactics. Payday lenders partner with banks located in permissive states to make loans that would be prohibited without "exporting" the bank's home state interest rates.

 "The payday loan industry is in for a shock," stated Jean Ann Fox, director of consumer protection for CFA. "While the FDIC does not categorically prohibit banks from partnering with payday lenders, the guidelines require up to dollar for dollar capitalization of loans, call any loan unpaid in sixty days a default, and brand serial loans as an unsafe banking practice."

 The FDIC is the last federal bank regulatory agency to take action on payday lending. In the last year or so, the Office of the Comptroller of the Currency (OCC) signed consent orders with the four national banks partnering with payday lenders, citing a range of safety and soundness risks and violations of federal consumer protection laws. The Office of Thrift Supervision (OTC) took similar action to stop thrifts from partnering with payday lenders. Last week, First Bank of Delaware, the only Federal Reserve member bank involved in payday lending, announced it would terminate its payday loan contracts this fall under pressure from the Federal Reserve Bank of Philadelphia.

 State banks partnering with payday lenders who are subject to FDIC guidelines include:

  • County Bank of Rehoboth Beach, DE partners with third-party storefronts, such as Money Mart in Virginia and Oklahoma; Check'n Go in Pennsylvania and North Carolina; Express Money Service and Urgent Money Service in North Carolina; Currency One in Philadelphia; USA Payday in Georgia; and EZ Pawn and Cash America in Oklahoma, among others.
  • BankWest, Inc., Pierre, SD, partners with Advance America to make payday loans in Georgia.
  • Republic Bank and Trust Company, a Kentucky bank, partners with Advance America in Texas. It previously made loans through a few Check Into Cash outlets in North Carolina.
  • First Community Bank of Washington (now Venture Bank) has been partnering with Advance America and National Cash Advance to make payday loans in Alabama and Arkansas.
  • First South Bank in Spartanburg, SC makes payday loans through FlexCheck, a chain of payday lenders operating in Virginia, Pennsylvania, and Georgia.
  • First Fidelity Bank in Burke, South Dakota is used by Advance America to make payday loans in Michigan.
  • Community State Bank, Milbank, SD, partners with Cash America pawnshops and First America payday lenders. This small state bank is owned by same holding company as First National Bank in Brookings, the national bank cited by the Comptroller of the Currency.

"With proper enforcement, FDIC regulated banks conducting payday lending will either stop or reform their lending. This should close the back door of federal pre-emption to state consumer protection laws," Ms. Fox stated.

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Consumer Federation of America is a nonprofit association of about three hundred pro-consumer organizations, founded in 1968 to advance consumer interests through research, advocacy and education.

CFA comments to the FDIC on the draft guidelines are posted at www.consumerfed.org.