Bloomberg has its heart in the right place with a story on banks seeking new prey, err, revenue streams to replace overdrafts (although, as the Times showed this morning, they’re doing all they can to con consumers into keeping the overdraft billions coming). But the execution just isn’t there.
U.S. banks may expand their short- term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees.
A “may” in the lede is a big red flag that you’re about to read a weakly supported story, and that’s unfortunately the case here. Here’s the following paragraph:
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
But there’s no evidence here that banks are doing such a thing. The only three banks shown here doing payday loans are ones, including Wells Fargo, that were already doing so before the Fed’s restrictions on overdraft. That doesn’t mean they’re not doing it—just that Bloomberg’s reporting doesn’t show it. A quote or two from consultants presumably pitching their wares does not a trend make.
All the same, this is a good topic for inquiry, in large part because of the banks already doing this. Bloomberg hits on something interesting here:
National banks making payday-type loans unfairly compete with payday loan stores because they’re exempt from state laws limiting interest rates, said Steven Schlein, spokesman for the Community Financial Services Association of America, an Alexandria, Virginia-based trade association, which represents payday lenders. National banks like Wells Fargo, U.S. Bancorp and Fifth Third are federally regulated, while payday lenders are overseen by the states.
“What the banks are doing are payday loans,” Schlein said. “Let’s have everybody operate under the same system.”
This puts the Bush-era protection of banks under the preemption doctrine (not the foreign-policy one) further into the glare. That doctrine said states could not regulate national banks within their borders, leaving predatory lending regulation to Bush administration regulators, who did little or nothing about it. See Dean Starkman for a deeper look at that and at the journalistic failures that coincided with it.
The subject of banks getting into payday lending is for sure worth watching closely, though, and it’s good to see reporters try to get out ahead of a story instead of just being reactive.