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Valparaiso Univ. Law School

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Friday, April 24, 2009

"Payday lender" squeezing defenseless . . . banks?

Guess who's feeling what it's like being in the clutches of a predatory lender?  Yep, Americas's banks, who are suddenly discovering what a lot of consumers have discovered over the years: the peril of fine print in loan agreements.  Here are some highlights of a new piece by Katharine Mangu-Ward:

Everyone knows that you should read the fine print before taking out a loan, whether it's $100 from a payday lender or $100 million in bailout loans from the federal government. You'd think that no one would know this better than bankers themselves.

Banks who are trying to pay back their bailout funds are finding that it's not easy to get back out of debt.

“It almost makes the Treasury look like a payday lender," Camden Fine, president of the Independent Community Bankers of America told Bloomberg, discussing the kerfuffle over the refusal of the Treasury department to accept early repayment of bailout loans on favorable terms.

While Fine meant to criticize Treasury for the high dollar costs it was imposing on banks attempting to pay back TARP money ahead of schedule—“If you look at the cost of those warrants and turn it into an annual percentage rate, it’s enormous,” Fine said—but the point goes in both directions. The federal government may be acting like a payday lender trying to extract the greatest gain from loans to folks with limited options, but the banks are acting like payday lending customers who take out loans and then go whining to their legislators and city council members when the loans come due.

Check out the whole discussion.

[Frank Snyder]

http://lawprofessors.typepad.com/contractsprof_blog/2009/04/payday-lender-squeezing-defenseless-banks.html

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