A Recent Story

Payday lending is a sordid, predatory program which can place poor and middle class Americans in a financial death spiral.  

A few major banks, Wells Fargo, US Bank, Regions, and Fifth-Third Bank, have entered the marketplace wherein they earn 90%-300% interest rates on very short-term advances. The advances are repaid with pre-established direct deposits such as social security checks. It is hard to believe that banks are still that irresponsible after the financial crisis which just occured. In order to build a case to persuade the evil doers to discontinue their bad practices, Because of their capital leverage and relatively low loan losses, their returns on equity can exceed 1000%! That is correct - 1000%! Those banks do not disagree with this when they have been confronted with the calculations. Aquinas Associates has been working with two of the largest "good" banks to obtain acknowledgement that they will not offer the product. Those two major banks, Citibank and JP Morgan Chase have agreed that PAYDAY LENDING is bad for customers and stated that they will not allow it to happen at their institutions.

While the four large "bad banks" thought that they could get away with this sordid lending, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau have stepped in and declared that paday lending is a debt trap. New rules and regulations will be issued later in 2013 on the topic.  

Sadly, the bank managements had argued strongly to keep their customers in debt. We had contacted their direcors for one last chance to reverse the positions of bank management and they support the abusive practices. At the same time, we have been engaged with banking regulators on the topic. We Win!!! The regulators have agreed with us that the product is a debt trap and is bad for customers. New regulations will soon be issued.

The two major banks that are acting responsibly are Citibank and Chase. We recommend that you support them if you are considering a change in bank relationships.

Investors should be concerned that the management and directors of Wells Fargo and US Bank cannot understand the bad economics of small loans. Why would anyone have confidence that they understand large loans, credit default swaps, derivatives, etc.?