The Federal Deposit Insurance Corp. plans to investigate claims that U.S. banks are offering products resembling so-called payday loans faulted by regulators for taking advantage of lower-income borrowers.
"The FDIC is deeply concerned about these continued reports," Martin Gruenberg, the agency's acting chairman, wrote in a letter Tuesday to Lisa Donner, executive director of Americans for Financial Reform, a Washington-based advocacy group. "Consequently, I have asked the FDIC's Division of Depositor and Consumer Protection to make it a priority to investigate reports of banks engaging in payday lending and recommend further steps by the FDIC."
Gruenberg wrote to Donner in response to a Feb. 22 letter from about 250 consumer advocacy groups calling on federal regulators to stop Wells Fargo & Co., U.S. Bancorp, Regions Financial Corp. and Fifth Third Bancorp. "from trapping their customers in long-term debt at 400 percent annual interest."
The FDIC has "long-standing guidance related to payday lending and has encouraged banks to offer small dollar short-term loans on a responsible basis," spokesman Andrew Gray said in an e-mailed statement.
Payday loans are short-term, small-dollar credits secured by postdated checks that lenders can cash when the loan falls due. The effective interest rates on such loans can reach 521 percent, according to the Consumer Financial Protection Bureau, which is conducting its own investigation of the practice.
Most payday lending occurs through storefront lenders or online. Some banks have begun offering products that debit customers' existing checking accounts.
Thomas Joyce, a spokesman for U.S. Bancorp, declined to comment, as did Evelyn Mitchell of Regions. Debra Decourcy of Fifth Third didn't respond to an e-mail seeking comment.
Richele Messick, a Wells Fargo spokeswoman, declined to comment on the FDIC action while emphasizing that the San Francisco-based bank's product differs from traditional payday loans. Customers have to repay a loan before taking out another and frequent users are steered into installment loans or have their credit curtailed, she said.
