Bailed-Out Banks Finance Predatory Payday Lenders

That is the claim in a new report published this week by National People's Action (NPA) the Chicago-based community organization. The report, called Preditors' Creditors, names Wells Fargo, Bank of America, and JP Morgan Chase as some of the biggest lenders to the booming payday loan industry.

"The very same banks that helped tank the economy are now helping the
bottom feeders of the industry," says George Goehl, Executive Director
of NPA. "The report shows that a $300 payday loan could end up costing
you $750. If Al Capone was alive today, I bet you could get a better
deal from him."

Financing the Debt Trap

Wells Fargo, Bank of America, and JP Morgan Chase received $95 billion in Troubled Asset Relief Program
(TARP) bailout funds in 2008 combined. These banks continue to be
subsidized by the taxpayers, receiving near zero-percent interest
funding via the Federal Reserve. While the big banks have been reluctant
to invest in American factories and small businesses, they have decided
to support the predatory payday loan industry which charges customers
an average effective interest rate of 454 percent on small loans.

The Wall Street banks have extended $1.5 billion in credit over the
last few years to publicly traded payday loan companies and almost
double that when privately held payday loan firms are included. The
estimated 22,300 payday loan stores nationwide make $30 billion in loans
each year. Wells Fargo is the worst offender financing one third of the
payday loan stores in America.

The report claims that there are as many payday-lending outlets as there are McDonalds and Starbucks
combined. The majority of their customers are working people with jobs
but no access to affordable credit. 60-percent of borrowers take out 12
or more loans a year. "But small loans can add up to a big debt trap,"
says Kevin Connor, author of the new report.

To illustrate this point, the authors point to Kansas payday loan victim Mitzi Rivers-Singleton
who took out a series of small loans that added up to about $3,000.
Over a seven-year period she ended up paying $30,000 in fees. She was
rescued by a local community group that helped her secure a real loan
through a legitimate credit union, freeing her from the trap she was in.

Insider Reveals Tricks of the Trade

The biggest payday loan firm is the Orwellian-named Advance America,
a publicly traded firm listed on the New York Stock Exchange with over
2,500 outlets in 32 states. Wells Fargo, Bank of America and U.S. Bank
provide a $75 to 300 million line of credit to the firm at interest
rates ranging from four to eight percent on the loans. In recent months,
Advance America's booming profits have been noticed and it has been
touted as a "good investment" by Wall Street insiders.

One former employee of Advance America explains some tricks of the
trade. Speaking on the condition on anonymity (because he and other
employees were forced to sign a confidentiality agreement upon leaving
the firm), this former shop employee says that many of his clients were
on disability or U.S. Social Security:
"They would come in for a small loan and write a check to the company
dated the 3rd of the month, when their government checks would arrive.
All the Advance America employees were required to come in early on that
day, so we could quickly cash their checks and wipe out their checking
accounts."

A primary goal is to get customers to continually renew their loans.
"We had to call in our numbers every night to Advance America's
corporate headquarters. They were not interested in numbers on who paid
off their loans, but on who renewed their loans. They wanted folks to
pay the interest rate and keep the loan going and going," says the
former employee.

This employee also worked for a time in the collection department
where he was instructed not to visit people at home, but to go to
people's place of employment first. "We would not tell their bosses
where we were from, but we would carry a clip board with our name on it
in a prominent way. We would request that a person be pulled off the
factory floor, not to collect, but to keep them on the hook. The key was
embarrassment and intimidation."

Community Activists Fight Back

Advance America admitted in a recent Securities and Exchange Commission
filing, "If we are unable to maintain access to external sources of
liquidity, our ability to finance our current operations and future
dividends would be impaired." That is why National People's Action and
affiliated groups are campaigning to force the big banks to cancel all
lending agreements with payday loan operators. This work is starting to
have an impact.

This past April, Grass Roots Organizing or GRO, a Missouri community group, took over the headquarters of QC Holdings, the largest payday loan operator in the state, and demanded that Bank of America break their ties to firm. In June, Bank of America conceded.

When big Wall Street banks tanked the economy, Americans lost an
estimated $14 trillion in wages, savings and housing wealth. According
to Kevin Connor, these same big banks continue to "finance wealth
destruction" via payday loan operations, a type of disaster capitalism
that would make even Al Capone cringe.

Read the report Preditors' Creditors by clicking here.