New report on Payday Financing: The Predators’ Creditors

Today we partnered with National People’s Action (NPA) to release a new report, The Predators’ Creditors: How the Biggest Banks are Bankrolling the Payday Loan Industry. The report details ties between payday lenders and big banks, including financing arrangements, shared leadership, and ownership ties.

A bit of background about payday lending — payday lenders extend short-term loans to cash-strapped borrowers against their next paycheck. Fees are $15-20 per $100 borrowed, and loans are often $400 or less. The report pegs an average interest rate at 455%. Borrowers are often trapped in cycles of debt, where they need to renew these high-interest rate loans in order to pay off their debt.

Payday lenders are often criticized for being “loan sharks,” “predators,” and “bottom feeders” but they are intricately linked to high finance. The report estimates that big banks extend up to $3 billion in financing to payday lenders, based on a review of SEC and UCC filings. Wells Fargo lends to more payday companies than any other; Bank of America, JPMorgan, and US Bank also finance payday lending.

Here’s a map of these financing arrangements from the report:

payday credit web
The payday credit web.

The Wall Street Journal’s take on the report pretty much sums it up:

The weak economic recovery might be making it harder for small businesses and families to get loans. But there’s at least one unlikely group that isn’t having problems securing financing: payday lenders.

The report notes that Wells Fargo and several other banks actually expanded lines of credit to two payday lenders just weeks after the 2008 bailouts so they could purchase pawn shop chains in Mexico and Las Vegas (ground zero of the foreclosure crisis).

The report also finds that some of the largest payday lenders are led by former Wall Street executives. Bear Stearns and Goldman Sachs executives guided the rise of Dollar Financial; board members at Advance America have ties to Morgan Stanley and Bank of America; and the private equity firm that owns ACE Cash Express has ties to numerous lenders. A handy map of those leadership ties, also from the report:


And finally, the report cover, featuring predator sharks and creditor yachts:

Screen shot 2010-09-14 at 9.24.05 PM

NPA groups across the country are taking to the streets this week to demand that big banks stop financing abusive payday lenders. You can follow the action here.