Though 18 U.S. states have taken measures aimed at eliminating predatory lending practices, 32 states still allow payday and deposit-advance interest rates with high interest rates or no rate cap at all.
Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont and West Virginia, as well as the District of Columbia, have all curbed payday lending and deposit-advance products.
Last week, the FDIC said in its guidance on deposit advance loans that while the regulator encourages institutions to develop methods to meet customers’ small-dollar credit needs, the products often have some elements of predatory lending.
“The combined impact of an expensive credit product coupled with short repayment periods increases the risk that borrowers could be caught in a cycle of high-cost borrowing over an extended period of time,” the FDIC said. “Though deposit advance products are often marketed as intended for emergency financial assistance, and as unsuitable for meeting a borrower’s recurring or long-term obligations, the FDIC believes the product’s design results in consumer behavior that is frequently inconsistent with this marketing and is detrimental to the customer.”
The Association of Independent Consumer Credit Counseling Agencies said many payday and deposit-advance loan clients do not understand the consequences of borrowing against future income, adding that many consumers become caught in a harmful financial cycle.
“Our member offices often see consumers with payday loan problems,” AICCCA President David Jones said. “Many of those businesses are open 24 hours and all are highly profitable. Those that can least afford to pay them are the victims. This is a situation where the poorest and most financially unsophisticated among us are being made poorer and more dependent on a highly predatory practice.”