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Increasing numbers of people are finding themselves so close to the financial brink that they must borrow against future wages just to cover the costs of everyday life. Over the past half century, the purchasing power of wages have fallen while access to credit has risen, causing credit to replace wages for an increasing number of purchases. Meanwhile, personal savings have fallen steadily from their 1970's peak. The effect of this dependence on credit is that the average American has very little financial leeway when something unpredictable happens or just needs to scrape together enough money to pay monthly expenses. Those expenses lead to 75% of payday borrowing.
The Consumer Financial Protection Bureau released a new report on payday lending at a public hearing in Nashville. The agency is nearing the release of new rules to govern the industry. Their report argues that "short term" loans are usually not short term at all, but more often renewed again and again as consumers dig themselves into deeper sinkholes of debt. Half of all loans, for example, come as part of sequences of 10 or more renewed loans — and in one out of five loans, borrowers end up paying more in fees than the initial amount they borrowed. It is not clear what form the upcoming CFPB regulations will take; the Dodd-Frank Act prohibits imposing usury caps, but the CFPB may eliminate lump-sum payday loans or require the loans be modified to incorporate more affordable installment plans.
Bronx-based Spring Bank seems like a perfect candidate for New York State's Banking Development District program, an initiative that encourages banks to put branches in low-income neighborhoods that have none. Spring Bank, recently certified as a CDFI, offers customers financial literacy courses and products like checking accounts with no fees or minimum balance requirements. But two years ago, when the bank expanded into Harlem, its application to participate went nowhere. The reason: the program was being revised and New York's Department of Financial Services was not considering new applications. This revision has been going on for the last four years, leaving the popular program in limbo.
Urban Partnership Bank is selling a branch in the Chicago suburb of Stone Park to Wintrust Financial Corp., the latest move in the bank's bid to scale back its sprawling enterprise. “Our strategy and the business have changed, and we're getting back to the fundamentals of serving Chicago's South and West sides,” an Urban Partnership spokesman said. Under the terms of the deal, Wintrust will take on the branch's deposits, but not its loans. The employees of the tiny branch, which holds less than $5 million in deposits, are also expected to transfer to Wintrust. The sale will leave UPB with nine branches.
Sixteen of the 20 largest U.S. cities are experiencing growth rates faster than their surrounding suburbs, reversing a trend towards suburban sprawl that has held since the '20s. Retiring baby boomers and millenials alike are relocating to the city in search of culture, walkability and faster-paced lifestyles. For banks, this transition is contemporaneous with hard economic times. The proclivity of younger city dwellers toward online banking has dovetailed nicely with many banks' impulse toward downsizing branches to cut costs. But regulators worry the next lending bubble could appear in the urban real estate market. Bankers are also wary, looking for signs of overcapacity after getting burned in the housing bubble.
An Idaho bill setting restrictions on payday lending has passed the state's House of Representatives by only one vote and now awaits the Governor's approval. The bill limits the amount of payday loans a borrower can take out to 25 percent of monthly income and caps the number of times a lender can try to redeem a bounced check at two, ending the possibility of racking up additional fees. The bill also allows a borrower who can't pay within the usual two-week term to request an extended payment plan without additional fees. But Dawn Juker of Catholic Charities of Idaho said the bill doesn't go far enough and she'd rather have no bill at all instead of the one speeding through the Legislature. "There's too many things the consumer would have to be responsible for -- such as requesting an [extended payment plan] -- that payday lenders would not typically market," Juker said.
A number of Chicago-based banks, including ABC Bank and Urban Partnership Bank, are seeking ways to direct the unbanked away from predatory small dollar loans. "I think we have questions about the responsibility about some of the [small-dollar loan] products,” said Levoi Brown, chief banking officer with Urban Partnership Bank. “A lot of these people are already in debt. So what you are doing is continuing to feed that cycle.” ABC Bank offers Ready Cash, a small-dollar loan product for the unbanked. Reginald Little, loan officer at ABC, said the product offers a much better interest rate and repayment than other nonbank firms. Mr. Little picked up an application form from a local payday loan lender and pointed at the 403 percentage rate. “Don’t you think that’s a bit abusive?”
A new video documents the impact of Virginia Community Capital's Pathfinder Program on the Appalachian town of Glade Spring. The program started in 2010 when Virginia Community Capital convened a variety of national and regional stakeholders to discuss solutions for rural Virginia's economic hardships. With funding from the DHCD, the Pathfinder Program injected much-needed capital into the towns of Glade Spring and Onancock. Dirk Moore of the Glade Spring Planning Commission remarked on the progress:"When I think about the past, I remember boarded-up windows, people talking about a 'ghost town.' Today, the town features bustling shops, including a new outfitters, an artisan store featuring handmade products by local artisans and two restaurants.
Nacha, the bank industry group that sets the rules for the network that connects every U.S. bank and credit union, has announced a new effort to achieve same-day electronic transactions. Under Nacha's proposal, payments will eventually be processed twice each weekday. But the overhaul would fall short of the near real-time systems that have been built in the United Kingdom, Mexico, Sweden and other countries -- and will also lag behind numerous proprietary real-time payment systems in the United States. The organization plans to phase in same-day capabilities in three stages, which they hope will assuage concerns raised opponents who derailed a similar effort in 2012 and give banks more time to make costly upgrades to their computer systems.
Illinois attorney general Lisa Madigan has accused payday lender All Credit Lenders of misleading borrowers and skirting the state's usury laws. In a lawsuit against All Credit Lenders, Madigan contends the company deceived borrowers into buying a product pitched as a way to protect them from falling behind on payments in the event of a job loss. But those protections never materialize, the lawsuit said. In fact, the fee is designed to raise interest rates and circumvent the state’s usury cap of 36 percent. The lawsuit referred to the loans as "cash incinerators" with minimum payments that cover only the interest and the mandatory maintenance fee charged each month. “This is one of the more egregious products I have come across,” Madigan said.