How the Major Banks Finance Payday Lending Companies
Key Facts on Payday Lending:
- An estimated 120 million payday loans are issued annually in the US worth a total value of $42 Billion.
- The average effective interest rate on a payday loan is 455% (APR). For a loan of $300, a typical borrower pays on average $775, with $475 going to pay interest and fees over an average borrowing cycle.
Watch the video of Mitzi Rivers-Singleton of Kansas who ended up paying $30,000 in fees for a $3,000 loan over a seven year period:
- There are some 17 major payday lending companies (both public and privately-held) that operate approximately half of the nation’s total of 22,000 payday lending outlets.
- Major banks provide over $1.5 Billion in credit available to fund major payday lending companies.
- The major banks funding payday lending include Wells Fargo, Bank of America, US Bank, JP Morgan Bank, and National City (PNC Financial Services Group).
- All together, the major banks directly finance the loans and operations of (at minimum) 38% of the entire payday lending industry, based on store locations.
- The major banks indirectly fund approximately 450,000 payday loans per year totaling $16.4 Billion in short-term payday loans.
- Wells Fargo is a major financier of payday lending and is involved with financing companies that operate one third (32%) of the entire payday lending industry, based on store locations.
- All of these above mentioned banks received TARP bailout funds in 2008-09 and have benefited from accessing capital at exceptionally low interest rates from the Federal Reserve.
- Major banks access credit from the Federal Reserve at 0.5% or less, these banks extend an estimated $1.5 Billion annually to eight major payday lending companies, who in turn use this credit to issue millions of payday loans to consumers every year at average rates of 400% APR.