Brian Moynihan Should Cut Ties With Payday Lenders

Today, Senate Republicans blocked a vote to confirm Richard Cordray as head of the Consumer Financial Protection Bureau. This signals a victory for big banks, the 1%, and corporate money in our political system. Cordray's confirmation would have been a threat to business as usual for the big banks because we would have a leader who could put an end to the kinds of predatory practices that drove our economy to the brink of collapse.

If any bank represents the need to have a regulator in place that protects people on consumer financial issues, it's Bank of America. Whether their $35 overdraft fees, foreclosing on more families than any other bank in the country, or a recent failed attempt to institute a $5 a month fee on debit card holders, America's bank has become a symbol for all that is wrong with the financial sector.

Now here's an abuse you may not have heard of. Bank of America provides hundreds of millions in financing to payday lenders who charge their customers annual interest rates of up to 455%. In doing so, Bank of America is supporting an industry that succeeds by trapping their customers into spiraling debt cycles. On average, a $300 payday loan actually costs the borrower over $750.

Instead of helping families build wealth, payday lending actively strips wealth away from families and communities. In a nation facing historic wealth inequality, payday lending at interest rates that sometimes reach 1000 percent is the exact kind of practice that both exploits wealth disparity and expands it. This is the top 1% profiting off the misery of the bottom 10%.

Payday lenders wouldn't be thriving without the financial backing of the mainstream banking industry. The same banks that taxpayers bailed out, including Bank of America, Wells Fargo, US Bank, and JP Morgan Chase, provide over $1.5 billion in credit that funds an estimated $15 billion in payday and cash advance loans.

As part of a strategy to clean up their reputation, Bank of America should lead an industry-wide walk away from this form of predatory lending by ending financing agreements with Advance America and MoneyTree Inc, two major payday lenders in America. Bank of America's Chief Executive Officer, Brian Moynihan faces no shortage of challenges, including preparing his bank for stress tests being implemented by the Federal Reserve. But if he is serious about shoring up his bank's reputation, he should line up some quick victories. Ending financing agreements with payday lenders is a simple decision, and something that Mr. Moynihan has complete control over. He just needs to decide he does not want his bank associated with these predatory practices and not renew financing agreements with Advance America and MoneyTree, Inc.

That's the easy part. Bank of America also needs to invest in a fair and affordable small dollar loan program. In a nation in which 46 million people are living in poverty, there is a real need for small consumer loans to help people make it through tough times. Some banks will say they can't make enough profit from an affordable small dollar loan product. Here's a novel idea - What if the banks did this because it is in the public interest? What if they expanded their purpose to speak to a bottom line that not only included profit, but also the health and well-being of families, communities, and the environment? Corporations exist because we, the public, allow them to. They are a creation of the laws of our government. And therefore we have the right to ask, even demand, that corporations serve a purpose greater than simply expanding profit. Banks are a good place to start as they are recipients of exceptional public privileges. For instance, national bank depositories, of which Bank of America is one, access loans from the Federal Reserve at interest rates of 0% or just above that. They borrow money at 0% and lend it to the public at a higher rate. This becomes particularly offensive when they then lend it to their friends in the payday loan industry, who in turn lend it to us at rates of over 400%. They should and could meet the need for affordable small dollar loans to help families make ends meet. In doing so, they would begin to demonstrate that they could act in the interest of a new, more thoughtful bottom line.

Bank of America is not the worst on this front, Wells Fargo is, financing not only more payday lenders, but offering their own customers payday loans at triple digit interest rates. And this is why Brian Moynihan should separate his bank from the pack and publicly declare that Bank of America will not finance institutions that prey on people's hardship. More than any bank in the country, Bank of America needs to find ways to rebuild its relationship with the American people. At a time when wealth inequality is at the center of the national dialogue, now is the time for Mr. Moynihan's bank to divest from industries designed to prey on families caught between a rock and a hard place. This simply means not renewing lending agreements with these predators and then investing in the creation of small dollar loan products that are fair and affordable. Bank of America can meet the real public need of helping people living check-to-check bridge the gap when emergencies arise.

At demonstrations across the country, we've heard the chants "Bank of America is Bad for America." If Mr. Moyhihan wants these chants to end, he should consider this one of the steps he takes in effort to prove this slogan is no longer true.