Community and civil rights groups celebrated an important victory earlier this month when Wells Fargo Bank backed off its plan to roll out a high-cost loan product in New York and Connecticut. Wells Fargo had planned to expand its payday loan-like product to the two states next month through its Wachovia branches, soon to be rebranded as Wells.
While there is currently only one Wachovia branch in the Bronx, advocates were extremely concerned that this product might have opened the door for wide-scale payday loans in New York State which has long prohibited them through a criminal usury cap of 25%. Wells Fargo, which charges 120%-1,200% APR on its “direct deposit advance” loans, intended to use its status as a national bank to circumvent New York’s usury law.
Vehement opposition by neighborhood groups throughout the City, including West Bronx Housing and Neighborhood Resource Center and University Neighborhood Housing Program in the Bronx, as well as by national fair lending advocates, apparently led the bank to reconsider.
In states where Wells Fargo makes its advance loans, checking account customers can borrow up to $500 by signing over their next direct deposit of payroll, Social Security or other public benefits to repay the loan, plus fees. Just like a traditional payday loan, a borrower living paycheck to paycheck can easily get caught in a downward spiral of excessive fees and interest.
Notwithstanding Wells Fargo’s decision, the bank reportedly plans to introduce a modified loan product in New York and other states. Local and national groups have vowed to fight any future loans that violate state usury or other laws.