---

 [ ARCHIVE ](https://www.citywatchla.com/index.php?option=com_content&view=category&id=16)

#  Banking on the Poor: Payday Borrowers are Trapped in a Downward Spiral of Revolving Loans

May 02 2013

Written by Andrew Korfhage.

<a class="a2a_button_facebook"></a><a class="a2a_button_twitter"></a><a class="a2a_button_email"></a><a class="a2a_button_print"></a>[](https://www.addtoany.com/share)

![](https://www.citywatchla.com/images/stories/May-2013/cw11036f.png)OTHER WORDS - What’s a fair interest rate to pay on a loan?

If you think a 300 percent annual percentage rate (APR) is no big deal, you can stop reading. But if you’d be outraged to learn that some of the country’s biggest banks — like Wells Fargo, Regions, US Bank, and Fifth Third — charge exorbitant triple-digit interest on their most vulnerable customers, you might want to read on.

The latest predatory schemes come with innocuous-sounding names like “Checking Account Advance” or “Direct Deposit Advance” from banks that offer direct-deposit services. They work like this: A bank provides a customer an “advance” on an upcoming direct deposit. When the funds appear, the bank immediately pays itself back, plus a fee.

The short term of the loan (a matter of weeks) combined with the huge size of the fee, usually pencils out to an APR between 225 and 300 percent. Even worse, if the borrower’s deposit can’t cover both their loan and other expenses, typically the bank pays itself anyway, triggers an overdraft, and simply pockets a second fee.

Ironically, banks have pitched payday loans to their customers as a way to avoid costly overdraft fees. But a recently released [report by the Center for Responsible Lending](http://www.responsiblelending.org/payday-lending/research-analysis/Triple-Digit-Bank-Payday-Loans.pdf) exposed the emptiness of this enticement.

The organization reports that payday loan software consultants have assured the mega-banks not to worry about “overdraft revenue cannibalization,” and they’re right. CRL reports that the opposite is true: Payday borrowers are twice as likely as all bank customers to incur overdraft fees.

All of this traps payday borrowers (a quarter of whom are Social Security recipients, according to CRL) in a spiral of revolving loans and compounding penalties. CRL found the median payday borrower took out at least 13 payday loans in 2011. Taking out 20 or even 30 loans a year isn’t uncommon.

Payday schemes prey on those least able to throw money away like this. Such abuse demands stronger regulation.

Currently, 13 states either ban the practice of storefront payday lending (which doesn’t apply to the mega-banks), or cap APRs for all lenders far below 300 percent. And for some borrowers, the federal government sets the standard. In 2006, after a Defense Department study found returning veterans vulnerable to predatory payday lending, Congress made it illegal to charge more than 36 percent APR on loans to military families.

Through creative loan structuring, banks evade the letter of all of these laws, issuing their super-high-interest-rate products to anyone they want, and anywhere they want.

To close the loopholes exploited by the banks, more than 250 organizations — including the AARP and the NAACP— have called for government action. They’re starting to get results. On April 23, the FDIC and an office of the Treasury Department issued guidelines which, if adopted and fully enforced, would begin to limit the frequency of payday loans.

That’s an OK start, but the guidelines are both non-binding and insufficient. The Federal Reserve Board should bring direct-deposit advances in line with state laws governing payday loans and with federal laws governing military lending. Then, Congress should go further and extend the 36 percent APR cap for military families to cover all borrowers.

These are very moderate consumer protections that mega-banks can easily afford. In 2012, Wells Fargo’s CEO, the highest paid banker in America, took home $19.3 million in compensation. That same year, Regions Bank’s CEO raked in $11.9 million, US Bank’s CEO pocketed $9.3 million, and Fifth Third’s CEO’s pay totaled $8.9 million.

These CEOs and their cohorts draw their salaries and other supersized compensation from profits inflated by taking advantage of customers so desperate they need a loan to make it from paycheck to paycheck. They should be ashamed.

It’s time to crack down on payday lending by the mega-banks.

*(Andrew Korfhage is [Green America's](http://GreenAmerica.org) online and special projects editor. This column was provided CityWatch by [OtherWords ](http://OtherWords.org))*

*-cw*

Tags: Andrew Korfage, banks, banking, poor, payday loans, payday advances

CityWatch

Vol 11 Issue 36

Pub: May 3, 2013

 [ ![save up to 4000 on used evs](https://www.citywatchla.com/images/LADWP/dwp%20ev%20ad2.png) ](https://www.citywatchla.com/component/banners/click/107 "LA DWP | Save $4K, Green | Priority Ad")

 [ ![Donna Tryfman](https://www.citywatchla.com/images/ADS%20FOR%202026/Donna-Tryfman-Ad-Final-Complete-Border-White-Margin.png) ](https://www.citywatchla.com/component/banners/click/98 "Donna Tryfman - HS1-1")

 [ ![LA DWP #2 (Pay Your Bill Help)](https://www.citywatchla.com/images/LADWP/dwp%20level%20pay%205-7-25.jpg) ](https://www.citywatchla.com/component/banners/click/82 "LA DWP #2 (Pay Your Bill Help)")

 [ ![David DeJute Campaign](https://www.citywatchla.com/images/ADS%20FOR%202026/DejuteAd.png) ](https://www.citywatchla.com/component/banners/click/111 "David DeJute Campaign")

 [ ![Pay Water Bill Help](https://www.citywatchla.com/images/LADWP/dwp%20-%20cares-ad.jpg) ](https://www.citywatchla.com/component/banners/click/97 "Home - LA DWP #2 (Pay Water Bill Help)")

 [ ![Anna Reitano Vertical R. Col](https://www.citywatchla.com/images/ADS%20FOR%202026/reitano%20vertical%20rework.png) ](https://www.citywatchla.com/component/banners/click/112 "Anna Reitano Vertical R. Col")

 ![](https://www.citywatchla.com/images/banners/signup-for-cw.png)

## Get The News In Your Email Inbox Mondays &amp; Thursdays

 Last Name

 ---

##  Featured CityWatch Stories

 [ ![](https://www.citywatchla.com/media/yootheme/cache/1c/072d-1c016ddf.jpg) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33319:when-the-last-minute-power-play-failed-sacramento-finally-ran-out-of-time&catid=375)

### [When the Last-Minute Power Play Failed: Sacramento Finally Ran Out of Time](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33319:when-the-last-minute-power-play-failed-sacramento-finally-ran-out-of-time&catid=375)

MY THOUGHTS - Gavin Newsom came to the final days of his final regular legislative session with one more major problem…

 [ ![](https://www.citywatchla.com/media/yootheme/cache/4d/073e-4dc54bff.jpg) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33336:may-day-international-workers-day-a-major-us-holiday-ignored-by-the-media&catid=398)

### [May Day/International Workers Day, a Major US Holiday Ignored By The Media](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33336:may-day-international-workers-day-a-major-us-holiday-ignored-by-the-media&catid=398)

PLANNING WATCH - Monday, September 7, 2026, was Labor Day, a holiday only celebrated in the United States and Canada as…

 [ ![](https://www.citywatchla.com/media/yootheme/cache/4e/072i-4e4914dd.jpg) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33314:olympics-la28s-drip-drip-drip-tactics-leave-los-angeles-holding-the-bag&catid=312)

### [Olympics: LA28’s Drip‑Drip‑Drip Tactics Leave Los Angeles Holding the Bag](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33314:olympics-la28s-drip-drip-drip-tactics-leave-los-angeles-holding-the-bag&catid=312)

NICK'S VIEW - Wonderland Los Angeles, a global symbol of dreams, myths, and possibilities, will take center stage at th…

 [ ![](https://www.citywatchla.com/media/yootheme/cache/12/073d-1253ced3.jpg) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33338:quid-pro-no&catid=378)

### [QUID PRO NO](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33338:quid-pro-no&catid=378)

MY VIEW - Quid pro quo: Latin for “this for that.” English for “bribe.” In Assemblymember Schiavo-speak: quid pro no—“N…

 [ ![](https://www.citywatchla.com/media/yootheme/cache/e7/072b-e7b222d1.jpg) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33321:1-billion-later-congress-comes-knocking-los-angeles-homelessness-machine-faces-its-day-of-reckoning&catid=396)

### [$1 Billion Later, Congress Comes Knocking: Los Angeles’ Homelessness Machine Faces Its Day of Reckoning](https://www.citywatchla.com/index.php?option=com_content&view=article&id=33321:1-billion-later-congress-comes-knocking-los-angeles-homelessness-machine-faces-its-day-of-reckoning&catid=396)

THE BOTTOM LINE - For years, Los Angeles taxpayers have been told the same thing about homelessness: Give us more money…

---

##  [ ARCHIVE ](https://www.citywatchla.com/index.php?option=com_content&view=category&id=16)

 [ ![](https://www.citywatchla.com/images/stories/Apr-2018/034e.png) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=15339:early-intervention-and-jobs-are-key-to-stemming-chronic-homelessness-in-los-angeles&catid=16)### [Early Intervention and Jobs are Key to Stemming Chronic Homelessness in Los Angeles](https://www.citywatchla.com/index.php?option=com_content&view=article&id=15339:early-intervention-and-jobs-are-key-to-stemming-chronic-homelessness-in-los-angeles&catid=16)

### [Tucker Carlson and Gay Rightwinger Blame California Wildfires On Hiring LGBTQ People](https://www.citywatchla.com/index.php?option=com_content&view=article&id=18755:tucker-carlson-and-gay-rightwinger-blame-california-wildfires-on-hiring-lgbtq-people&catid=16)

### [Anti-LGBTQ Veep Just Can’t Stop Talking about Mayor Pete](https://www.citywatchla.com/index.php?option=com_content&view=article&id=17690:anti-lgbtq-veep-just-can-t-stop-talking-about-mayor-pete&catid=16)

 [ ![](https://www.citywatchla.com/images/stories/Apr-2018/033j.png) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=15316:news-pulse-corrupt-system-reason-for-not-voting-in-2018-majority-wants-more-than-two-parties&catid=16)### [NEWS PULSE: ‘Corrupt System’ Reason for Not Voting in 2018 … Majority Wants More Than Two Parties](https://www.citywatchla.com/index.php?option=com_content&view=article&id=15316:news-pulse-corrupt-system-reason-for-not-voting-in-2018-majority-wants-more-than-two-parties&catid=16)

 [ ![](https://www.citywatchla.com/images/stories/Jan-2016/1404d.png) ](https://www.citywatchla.com/index.php?option=com_content&view=article&id=10245:dead-dog-set-on-fire-sparks-fears-for-strays-in-los-angeles&catid=16)### [Dead Dog Set on Fire … Sparks Fears for Strays in Los Angeles](https://www.citywatchla.com/index.php?option=com_content&view=article&id=10245:dead-dog-set-on-fire-sparks-fears-for-strays-in-los-angeles&catid=16)
<div data-id="1" 
	class="eb-inst eb-hide eb-emailform eb-1 eboxContentLocker"
	data-options='{"trigger":"onPageLoad","trigger_selector":"","delay":3000,"early_trigger":true,"scroll_depth":"percentage","scroll_depth_value":80,"firing_frequency":1,"reverse_scroll_close":true,"threshold":0,"close_out_viewport":false,"exit_timer":1000,"idle_time":10000,"close_on_esc":false,"animation_open":"slideInDown","animation_close":"fadeOutDown","animation_duration":400,"disable_page_scroll":true,"test_mode":false,"debug":false,"ga_tracking":true,"ga_tracking_id":"G-P16BQ7X1SW","ga_tracking_event_category":"EngageBox","ga_tracking_event_label":"Box #1 - Global Email Signup Form","auto_focus":false}'
	data-type='popup'
	>

	<button type="button" data-ebox-cmd="close" class="eb-close placement-outside" aria-label="Close">
	<img alt="close popup button" />
	<span aria-hidden="true">&times;</span>
</button>
	<div class="eb-dialog eb-formVer" role="dialog" aria-modal="true" id="dialog1" aria-label="dialog1">
		
		<button type="button" data-ebox-cmd="close" class="eb-close placement-inside" aria-label="Close">
	<img alt="close popup button" />
	<span aria-hidden="true">&times;</span>
</button>	
		<div class="eb-container">
						<div class="eb-content">
				
<form action="https://citywatchla.us2.list-manage.com/subscribe/post?u=34d69f33624fd058ee9b56516&amp;id=4bfa422f51&amp;f_id=00d6c2e1f0" class="eb" method="post" id="mcform-1" name="mcform-1" target="_blank">
			<div class="eb-form-header"><p><img src="/images/2023/06/be-a-city-watcher.png" alt="be a city watcher" width="350" height="97" loading="lazy" data-path="local-images:/2023/06/be-a-city-watcher.png"></p>
<p>Sign up to receive our special e-news blasts on Monday and Thursday evenings!</p></div>
	
					<div class="eb-field-row">

			
			
			
			<input class="eb-input" type="email" name="EMAIL"  placeholder="Email address"  id="EMAIL" value="" required>

			
		</div>
										
	<div class="eb-footer">
    	<button class="eb-btn" type="submit" name="subscribe" style="background-color:rgba(93, 183, 93, 1);color:rgba(255, 255, 255, 1)">
    		Sign up    	</button>
    </div>
</form>			</div>
		</div>
	</div>	
</div>
<div data-id="3" 
	class="eb-inst eb-hide eb-yesno eb-3 "
	data-options='{"trigger":"onScrollDepth","trigger_selector":"","delay":0,"early_trigger":false,"scroll_depth":"percentage","scroll_depth_value":80,"firing_frequency":2,"reverse_scroll_close":false,"threshold":0,"close_out_viewport":false,"exit_timer":1000,"idle_time":1000,"close_on_esc":false,"animation_open":"fadeInUp","animation_close":"fadeOut","animation_duration":300,"disable_page_scroll":false,"test_mode":false,"debug":false,"ga_tracking":true,"ga_tracking_id":"G-P16BQ7X1SW","ga_tracking_event_category":"EngageBox","ga_tracking_event_label":"Box #3 - Yes \/ No Donation Popup Box","auto_focus":false}'
	data-type='popup'
	>

	<button type="button" data-ebox-cmd="close" class="eb-close placement-outside" aria-label="Close">
	<img alt="close popup button" />
	<span aria-hidden="true">&times;</span>
</button>
	<div class="eb-dialog " role="dialog" aria-modal="true" id="dialog3" aria-label="dialog3">
		
		<button type="button" data-ebox-cmd="close" class="eb-close placement-inside" aria-label="Close">
	<img alt="close popup button" />
	<span aria-hidden="true">&times;</span>
</button>	
		<div class="eb-container">
						<div class="eb-content">
				
<div class="ebox-yes-no">
	<div class="ebox-yn-text">
		
		
		<div class="ebox-yn-headline" style="font-size:22px;color:#888888">
			<p>If you only give once a month, would you consider giving to CityWatch?</p>
<p>Your support fuels our mission to promote and facilitate civic engagement and neighborhood empowerment, and to hold area government and its politicians accountable.</p>
<p>Would you like to help? Even if you can only give $5, it will make a difference.</p>		</div>
			</div>
	
	<div class="ebox-ys-buttons" style="font-size: 16px;">
		
<a
					data-ebox-prevent="0"
		data-ebox-cmd="close"
				target="_self"
		href="https://www.citywatchla.com/donate"
		rel="noopener"
	
	
	
	
	class="ebox-ys-btn"
	style="background-color:#2ec664;color:#ffffff;min-width:100px">
	Yes
	</a>
<a
	
	
			data-ebox-cmd="close"
		href="#"
	
	
	class="ebox-ys-btn"
	style="background-color:#ef2345;color:#ffffff;min-width:100px">
	Not Right Now
	</a>	</div>

	</div>			</div>
		</div>
	</div>	
</div>