Payday Lenders Funded By Bank Of America, Chase, WellsFargo, U.S. Bancorp, Wachovia

Seven big payday loan chains are extensively bankrolled by brand name banks. Bank Of America, Chase, WellsFargo, U.S. Bancorp, and Wachovia all extend tens to hundreds of million dollars in lines of credit to these predatory lenders who charge several hundred percent interest on cash advances, often made to the poor and uneducated.

The chart above shows the who and how. It’s a rework of a chart in the appendix of a report by the National Consumer Law Center, who in turn got their data from SEC filings and exhibits.

Kinda like finding out the hardware store owner sells crack on the side.

While companies are in business to make a profit, you gotta wonder, if there’s nothing wrong with payday loans, why don’t these banks offer it at their branches? — BEN POPKEN

UTILITIES AND PAYDAY LENDERS: CONVENIENT PAYMENTS, KILLER LOANS [National Consumer Law Report]

PREVIOUSLY: Maxed Out’s Bombshells: 1. Wells Fargo Funds Payday Loan Chains 2. Celebrities Get VIP Credit Report Treatment

RELATED: Why Does AT&T Have 206 Payday Lenders Collecting Bill Payments?

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  1. Wormfather says:

    Is it suprising. Any time there’s a seedy way to “legally” make money and the big names dont want to be labeled, that just funnel money into a smaller buisness that has no problem getting their hands dirty.

    The major record labels did this with rap music for years. Not that there’s anything wrong with rap.

  2. iMike says:

    Banks aren’t in the business of making moral judgments. They’re in the business of lending money.

    Do you want Wells to call and counsel you when it sees that you’re taking a cash advance on your credit card in Vegas?

  3. tedyc03 says:

    This surprises people?

    Did they think they payday lenders were printing their money in the back room?

    Seriously now…

    (DISCLAIMER: I hate payday lenders like the rest of everybody else. But I’m not sure that this is a big huge surprise that they get their money from… *gasp* banks!)

  4. nweaver says:

    What is suprising is NOT that the banks extend commercial credit to payday lenders…

    What is suprising is that the payday lenders still need it…

    At $70M/year profit, rolling that money back into the business and reducing the credit demands by $70M a year, assuming a 10% interest line of credit, would result in $7M/year additional profit until the end of time.

    The other thing that is suprising is just how LOW the profit figures are, given the revenue figures… These places must be very inefficient and have a huge default rate to boot.

    Frankly, if Wal*Mart takes over this business, it would probably be better for all involved, at least Wal*Mart is efficiently evil and passes the cost savings on to their customers.

  5. Wormfather says:

    @nweaver: It’s because the Pay Day Loan places are them selves taking Pay Day Loans.

    They’re trapped I tell you

  6. awilson says:

    Of course payday loan places target poor & stupid people with bad credit!!! They wouldn’t be able to make ANY loans to smart & rich people with good credit. Mostly because those people are smart and aren’t willing to pay the extremely high interest rates. At least it is a legal place to do business…would you rather have them go to local loan sharks for their loans? I hear they have high rates too though…and tough collection procedures.

    nweaver: from what I have read on the places, the default rate is enormous. This is why they have to charge high rates in the first place.

    I suppose the way to get rid of the payday loan places is to make sure everyone pays of all their bills on time, thus keeping their credit risk low.

    Any possible solutions for that?

  7. belch says:

    Now I have to decide if I’m going to keep banking with Wells Fargo… Kinda pisses me off-

  8. Secularsage says:

    Should we write letters to our banks, asking for social responsibility here?

    Would it even matter?

  9. Kifune says:

    A local credit union is coming to my employer next week — can’t wait to get away from the big banks once and for all.

  10. Trackback says:

    The Consumerist just put up a post about who is financing the payday lenders. Chances are that you might do business with them. The Consumerist’s chart (compiled from the National Consumer Law Center) is worth a look.

  11. Scuba Steve says:

    “Do you want Wells to call and counsel you when it sees that you’re taking a cash advance on your credit card in Vegas?”

    I’d like them to call, yes. Deny me, if possible. I don’t ever go to Vegas.

  12. B says:

    “If there’s nothing wrong with payday loans, why don’t these banks offer it at their branches?”
    First, because people who have checking accounts generally don’t need the services of a payday loan, and second the people who use payday loans generally don’t trust banks.

  13. Fuzz says:

    Step 1: Don’t allow people with poor credit to set up a normal bank account

    Step 2:Open chains of high interest payday loan companies

    Step 3: Profit! Big Time!

    Sounds like a surefire way to make oodles of cash.

  14. BillyMumphry says:

    Step 1: Don’t spend more than you make.

    Step 2: Have some fucking common sense.

    Result: You actually have money for groceries and 40’s.

  15. ohnothimagain says:

    Fuzz–

    What is the relationship between #1. and the rest? How would a “normal bank account”, whatever that is, eliminate the need for a payday loan?

  16. fragmore says:

    State usury laws may prevent banks from these loans.

  17. Kifune says:

    @B:

    Wrong. Just because you have a normal checking account doesn’t mean you are on the brink of poverty with your crappy minimum wage Walmart job, hit a financial skid (car repair, etc.) and then find that the only way to get money fast when you live paycheck to paycheck is to go to these sharks.

  18. tedyc03 says:

    @Scuba Steve:

    But stopping fraud on your account would deny them the pleasure of trying to put you in jail for money you didn’t spend!

  19. John Stracke says:

    What’s the alternative? If a company comes to a bank and asks for a loan, the only appropriate question for the bank to ask is, “can they pay it back?”. It would not be appropriate for the bank to ask, “are they in a business I approve of?”, any more than it would be appropriate for, say, Dell to refuse to sell Gawker any computers because they don’t like the Consumerist.

    It’s not as if the banks have invested in these companies.

  20. mwdavis says:

    The question for me is not whether banks should or should be allowed to fund predatory lenders, but rather whether I want to do business with a bank that has an attenuated enough sense of – social responsibility – community – citizenship – that it doesn’t see a problem with supporting predatory practices, whether directly or indirectly, whether profitable or not.

    Seems like a bank could probably make money addressing the same problem that is “solved” by predatory lenders in local communities. And maybe build a future customer base, as well.

    But, I’m not a banker, and I could be wrong about that. I am, however, a bank consumer. Wells-Fargo may find that they have one less consumer . . . particularly since my Wells-Fargo branch is about one and one-half blocks from a Payday Loan business on the list above.

    So, Wells-Fargo, is constantly telling me how much they *care,* sponsoring community events, doing little charity drives, being oh-so-happy. I guess maybe they should put up or shut up.

    But that’s just me.

  21. anonymoose says:

    How is this news? EVERY public company was “extensively bankrolled” by one or more investment banks who were the underwriters for the IPO.

  22. B says:

    @Kifune: Or, you know, use a credit card. You know, the one you qualify for from your bank when you open a checking account. Sure the interest rate will be high and the credit limit will be low, but it’s still better than a payday loan.

  23. rodeobob says:

    @John Stracke: “If a company comes to a bank and asks for a loan, the only appropriate question for the bank to ask is, “can they pay it back?”. “

    Except that’s not what Payday Lenders ask. Payday lenders, even more so than credit card lenders, do not want their customers to repay the loans in full in a timely manner.

    That’s the underlying issue with “predatory lending”: the underlying business assumption isn’t the same as a traditional loan; its closer to perpetual debt.

    The Payday Lenders & credit card banks aren’t interested in “can they pay back what they borrow”, they want to know “how long can we make them pay us money, regardless of how much or how little they borrow”.

    Traditional lenders are concerned with a borrower’s ability to pay off the principle over time. Predatory lenders are only concerned with the borrower’s ability to pay off interest over time. That difference in criteria is the ethical principle that the whole discussion revolves around.

  24. @BillyMumphry:

    Result part 2: But not money for medical bills or emergencies.

    Step 3: End up in a payday loan place anyway.

  25. John Stracke says:

    @rodeobob:

    @John Stracke: “If a company comes to a bank and asks for a loan, the only appropriate question for the bank to ask is, “can they pay it back?”. “

    Except that’s not what Payday Lenders ask. Payday lenders, even more so than credit card lenders, do not want their customers to repay the loans in full in a timely manner.

    I know that. But look again: I wasn’t talking about when people come to the payday lenders; I was talking about when payday lenders come to the banks. I’m saying that, in that situation, it would be wrong for the banks to examine their customers’ morals. Yes, the banks are making money from companies which prey on the poor; but that’s the nature of money. Should a grocery store be expected to refuse to sell food to drug dealers?

  26. mwdavis says:

    @John Stracke:
    Should a grocery store be expected to refuse to sell food to drug dealers?

    Maybe a better analogy would be: If you neighbor is beating his wife, should you hand him a baseball bat?

  27. John Stracke says:

    @mwdavis:

    Maybe a better analogy would be: If you neighbor is beating his wife, should you hand him a baseball bat?

    No, the appropriate analogy there would be: if someone is selling baseball bats to the public, should they be required to refuse to sell bats to wife-beaters?

  28. Dan25 says:

    All of you complain about these payday lenders, but what about the people that actualy NEED them? As a banker, i see lots of customers who do not qualify for regular loans or credit cards. What are they expected to do when an emergecy comes up? These businesses are providing lending services for people who would otherwise never be eligible and never be able to get the money for whatever emergency they have. I’m not a supporter of payday lending by any means, but I think some of you are going way overboard with this. Why don’t you boycott whoever leases the property to them as well? Or how about the other stores in the same parking lot for supporting whoever lets them have a store front? Lets not forget about the people that provide Payday lenders with computers, cash registers, alarms, pens, ect.

  29. mwdavis says:

    @John Stracke:
    I understand the point you are making, and it’s not unreasonable. It’s certainly legal, and may even be good for the bank’s bottom line.

    Wells-Fargo has a right to make business decisions how they want as long as they don’t break the law, discriminate, etc. Wells-Fargo also has a right to market themselves to me as being “good for my community.” Wells-Fargo chooses to be complicit in predatory lending, an enabler if you will. That is their decision. As I said above , my decision is whether to do business with them as a banking services consumer.

    My role as a citizen, is to attempt to outlaw predatory lending (ah, for the good old days of usury laws.)

    In any event, your baseball bat salesman probably doesn’t know who is using his bats to beat their wives. Wells-Fargo does know. And they are choosing to sell.

  30. John Stracke says:

    @mwdavis:

    Wells-Fargo does know. And they are choosing to sell.

    But do they have a choice? Banks are regulated, and usually required to base their lending decisions on defensible economic standards, not on morality

    I’ll grant you that it’s nonsense for a company required to be amoral to market itself as a good citizen.

  31. happymeal says:

    O.k so I work in a payday loan place, I hate it and I know you all hate me, before I worked here I was a debt collector. More groans… Confessions of a debt collector & payday loan csr coming up??? Anyway I just wanted to note that Wells Fargo actually does offer payday loans, they just call them “direct deposit advances”. The loan works the same way a payday loan does, no credit checks. You just have to have your pay direct deposited. And the rates are just as ridiculous!!

  32. B says:

    @Dan25: I’m under the opinion that Payday loans should be required to comply with usury laws, for example, no 600+% interest rates, and the lenders should be subject to the same regulations as banks.

  33. mwdavis says:

    @John Stracke:
    Thanks for the discussion. It’s been thought-provoking and has led me to re-examine my own assumptions and thinking.

    I don’t honestly know how much latitude WF has in deciding to make a business loan, but I suspect it’s quite a bit more than for individuals.

    I’m finding it ironic, though, to say the least, that my bank has a 50 page PDF on their web site
    titled “One Team, Pulling Together for Communities” that trumpets their commitment as follows: “Communities: as the premier financial services company in each of our markets. We’ll promote the economic advancement of everyone in our communities including those not yet economically self-sufficient,who have yet to
    share fully in the prosperity of our extraordinary
    country,” but sees no contradiction in enabling predatory lending.

    Ironic and . . . disappointing.

    Again, thanks for the discussion.
    Reference to the above document:
    https://www.wellsfargo.com/downloads/pdf/invest_relations/wf2006corporate_citizenship.pdf

  34. Type-E says:

    Wells Fargo
    Revenue $328.5M
    Profit $7M

    They have super high expense.

  35. mwdavis says:

    @Type-E:
    According to their web site, quarterly earnings statement for the quarter ended March 31, 2007:

    “Record net income of $2.24 billion, up 11 percent from prior year’s $2.02 billion, up 12 percent (annualized) from fourth quarter 2006″

    https://www.wellsfargo.com/press/earnings20070417?year=2007

  36. wring says:

    Wells Fargo’s own payday loan is so convenient, you click a link and they add it up to your balance instantly. As long as you have direct deposit anyway. No more driving to the smarmy side of town where all payday loan places are!

  37. kaikhor says:

    Here is my solution to the whole thing. Instead of having these places where they charge you 200%, make it easier for a bank customer to get a loan.

    Way too many people go paycheck to paycheck and then have an emergency. These people should be able to walk into their regular bank, who sees them all the time and their accounts and get a temporary loans. Most (I will admit, not all, but most) would pay the loan back, but we’re not charging them an arm and leg in interest which makes it even harder for these people to pay it back and get out of debt.

    Just a thought…

  38. CumaeanSibyl says:

    @kaikhor: One problem with that solution is that most banks require a minimum balance for even the most basic free checking account (correct me if I’m wrong here) and therefore people living paycheck-to-paycheck can’t become bank customers. An alternative to check-cashing outlets, which charge a fee for something that bank customers can get for free, would help a lot of people out. Unfortunately, I don’t know enough about banking to suggest a specific solution to this problem — I imagine a bank would lose money on a no-balance, no-fee checking account.

  39. paydaylinda says:

    You can judge neither the profitability of a payday loan – nor the wisdom of taking one out – by interpreting the fee in terms of an annual percentage rate (APR), which is the basis of all criticism of payday lending.

    This can be seen by a very simple example. An employed man runs short of funds on the day before his payday. He needs $100 for medicine for his child. He comes to you and says, “Sir, I have an emergency and if you will please lend me $100 today I will pay you back $101 tomorrow after I get paid. I can’t borrow from a bank or credit card company because I didn’t pay back prior loans and have bad credit.”

    Now, are you going to take the time to review this man’s loan application, check his references, pay for a Teletrack search to see if he has other loans outstanding, and risk losing $100 lending to someone with bad credit – for just $1.00 in profit? No greedy payday lender would do that. But if one felt sorry for the man and did, he would be accused by people like the ones at Consumerist.com of being a payday loan shark – because that’s a 365% APR.

    Can’t you see how ridiculous that is? Consumer protection should be about curbing deceptive advertising, not telling merchants and service providers who have not been subsidized by the government how much they can charge for their product or service. That’s authoritarianism.

    If you want to help the small percentage of payday loan borrowers who get themselves into a debt trap by their own foolish misuse of payday loans then lobby the government to provide no-profit loans to people with emergencies. But don’t try and show off how moral you are by criticizing payday lenders and trampling on the free market. That is what is stopping new people from entering the payday loan business, which would in turn bring prices down somewhat. But short-term loans cannot be profitably made at a low APR, simply because of the fixed costs involved in making a loan. The above example shows that very clearly but people who are trying to build their reputations by criticizing payday lenders won’t acknowledge it. They are just looking for people to criticize so they can see themselves, and be seen by others, as the moral ones. Such people are much more harmful to society than payday lenders.

  40. SexCpotatoes says:

    In other news, IBM was in league with the Nazis…

  41. Moosehawk says:

    This reminds me of a good book.

    “Don’t spend money that you don’t have”

  42. happymeal says:

    @paydaylinda: Your exactly right, but I still hate this business.

  43. Its true only. These lenders are backed by big fishes in the business. In some cases the banks are making more profit than these lenders as they have an upperhand in the profit percentage.

  44. Daniel says:

    An adjunct to banks’ payday loan-sharking is their control of welfare benefits. For example, New York State issues a benefits card holding monthly food stamp and cash payments. If a problem arises, the number you call is actually a division of JP Morgan/Chase. The cash award (maximum $64 and change for a single person) can only be accessed through a bank ATM. (Of course, the ATM never gave you the change, which was lost.) Thus, many “unbanked” benefit recipients are forced to go to corner paycheck loans stores and pay the fee in order to get their money. You see who benfits here. When I was fortunate enough to receive a cash benefit, I researched the fee structure for all payday lenders in Harlem. There was one store that charged only $2.00. So I waited every two months to pull out the cash, to lower the hit. Not everyone can wait. Naturally, later in the year, that particular store went out of business.