Outcome: Omitted by SEC
Predatory lending like payday loans have received significant public criticism for their high interest rates and rates of repeat borrowing. Our company is extending high-cost direct deposit advances that resemble payday loans and could expose customers to a costly “debt trap”. We believe these advances present serious hazards to Fifth Third’s most financially vulnerable customers and to the company itself.
Fifth Third (“FITB”) charges $10 for each $100 borrowed through direct deposit advance. Loans are repaid automatically, in full, out of the customer’s next direct deposit. Research from the Center for Responsible Lending demonstrates that the typical user of this type of product pays 365% APR on a 10-day loan and remains indebted for 175 days out of the year.
This lending may pose regulatory, legal, and reputational risks to FITB. Regulators have repeatedly warned banks to avoid making or facilitating payday loans that result in long-term debt. The FDIC has begun an inquiry into payday lending practices and the Consumer Financial Protection Bureau has begun examination of payday-type, short-term lending at both payday storefronts and banks. FITB is one of only four major banks exposed to these risks, as the majority of state and national banks do not offer this type of product line.
In recent years, a host of predatory lending practices have cost households billions in fees and catalyzed instability in both the housing and financial markets. Payday lending can perpetuate this instability, draining productive resources from the bank’s own customer base and the economy as a whole.
FITB has disclosed little information to its shareholders about the product and the bank’s reliance upon it, and we do not believe management has demonstrated that steps taken to prevent or mitigate harms are effective.
Shareholders request the Board of Directors prepare a report by September 2013 discussing the adequacy of the company’s direct deposit advance lending policies in addressing the social and financial impacts described above. Such a report should be prepared at a reasonable cost, omitting proprietary information and not conceding or forfeiting any issue in litigation related to these products.
We believe responsible practices that are designed to strengthen rather than weaken customers’ financial health are in the best interest of our company, its clients, the communities it operates in, and our economy.
The FDIC has stated that “providing high-cost, short-term credit on a recurring basis to customers with long-term credit needs is not responsible lending, increases institutions’ credit, legal, reputational, and compliance risks; and can create a serious financial hardship for the customer.”
We believe it would helpful if the report includes information on the frequency with which the product is used, impact of the product on overdraft fees and nonsufficient funds fees, cost to the institution and total revenues derived from these loans. We also believe the report should include metrics to determine whether loans extended are consistent with customers’ ability to repay without repeat borrowing.