By: Javi Calderon
CFPB sees Big Banks as more of a Threat to Consumers than Short Term Loans
In January, Richard Cordray and the Consumer Financial Protections Bureau held a public forum in Birmingham, Alabama to hear opinions on payday loan lending, which is particularly prevalent in the landlocked states of the south.
Though it seemed like the CFPB was headed towards an investigation on short-term loans, they have about faced and turned their attention to big banks. The two issues they are looking to address are overdraft fees and bank backed short-term loans.
Banks have taken massive losses over the last few years. Not only did they take hits during the financial crisis, the aftermath left many consumers wary of their banks.
Last year, congress passed the Durbin Amendment to limit how much banks can charge for processing debit card transactions. Bank of America expects to lose $2 billion a year due to these restrictions, to replace those losses they have added fees to checking accounts and other products that they offer.
Though the total amount paid for overdraft fees by Americans has dropped 20% over the last two years, this can be attributed to improved fiscal responsibility by consumers -- not lowered fees. Banks have actually increased their overdraft charges considerably, from around $4 to as much as $30-35. For this reason, Cordray has vowed to rewrite the laws that govern bank overdraft fees to make them more consumer friendly.
In the mean time, the CFPB has been receiving complains from consumer groups regarding the short-term lending products that banks have introduced to compete with payday loans.
Unlike payday loans, these bank loans are paid off without the consumers’ knowledge. Banks deposit the funds into the borrowers account and then pay themselves back as soon as the next deposit is made. Critics believe this practice turns checking accounts into an enemy for struggling borrowers.
The Center for Responsible Lending conducted a study on these loans and opined that banks seem more interested in recouping lost revenue than actually helping borrowers.
Recently, Cordray has even pointed out that student loans have replaced credit card debt as the biggest cause of individual debt. It seems that while payday loans are still getting a lot of negative press, they are not high on the CFPB’s list of priorities.