Federal regulators have proposed a crackdown on banks engaged in payday lending-type programs that critics are calling debt traps. 7 On Your Side first began reporting on these concerns in 2007 and have this update on a major investigation.
There was a protest outside the Wells Fargo shareholders meeting in Salt Lake City on April 23, 2013. The protestors are upset over foreclosures and Wells Fargo's lending practices. They had hoped to address those issues at that meeting, but they were escorted out by security before they could speak. Only one protestor remained inside undetected at the meeting -- Annette Smith of the Sacramento area.
We first introduced you to Smith back in January. She originally took out a 30-day loan of $500 from Wells Fargo five years ago. She was charged an annual percentage rate equivalent to 91 percent. The loan must be paid in full within 30 days, so she says she's been forced to continue borrowing every month to keep up.
"Bottom line is she's paid them $3,000 in fees. So they have made their $500 loan back many times over," said Andrea Luquetta with the California Reinvestment Coalition.
Smith was clearly embarrassed by her situation. Her financial situation was not one she had shared with anyone before now. This is what she told us in January.
"And you know, I had to tell my children and friends," said Smith as she began to cry.
Then last month, Smith was able to address Wells Fargo Bank CEO John Stumpf at the meeting.
"I tore up my notes and said, Mr. Stumpf, since I'm here I'd like to take the opportunity to tell you that as long as I've been a Wells Fargo customer, I've been entrapped in this direct deposit advance that you call a service," said Smith.
Stumpf maintained the program was something customers wanted, that the program was only intended as a short term loan for emergencies. The program meets current regulatory guidelines, but Stumpf promised to review it.
Since then Wells Fargo has forgiven Annette's debt. Annette's story has since caught the attention of the New York Times and National Public Radio and it's also caught the attention of regulators. Both the office of comptroller and currency and the FDIC have proposed new rules regulating programs like the ones offered by Wells Fargo and U.S. Bank.
"First they would require the banks to say what the interest rate is for these loans," said Luquetta.
Those interest rates are currently not disclosed by either Wells Fargo or U.S. Bank. Instead the bank breaks it down into fees $1.50 for every $20 borrowed from Wells Fargo and $2 for every $20 borrowed from U.S. Bank.
"The second really exciting thing is that they would require the banks to actually look at the customer's ability to pay back the loans under the terms that they're offering it," said Luquetta.
U.S. Bank did not get back to us with a comment about the proposals. Wells Fargo would only say they are currently reviewing the proposed guidelines. Smith is thrilled at the role she's played in all this.
"They just needed a voice and I happened to be at the right time and at the right place," said Smith.
Both the FDIC and the Office of Comptroller and Currency are taking public comments on these proposals until May 30. Here are the links to the proposals and where you can leave your comments.