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Wells Fargo Caught Financing Predatory Lenders - YouTube
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today we're going to learn a little bit
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about predatory lending a practice that
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is prevalent throughout the united
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states and can exist in many different
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loans
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this video is going to focus mostly on
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big banks financing payday loan
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businesses but publicly not wanting you
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to know that they are a part of this
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business
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big banks like wells fargo will say
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publicly there are certain consumers
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that we're not comfortable lending to
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based on their high risk borrowing
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profile
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but if you come to us with a business
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plan on how to receive 500
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annual interest lending to those people
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we are all ears
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has written some great editorial pieces
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on the payday lending business in dallas
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and how the big banks are still quasi
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participating in redlining
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even though it's a lot more subtle than
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it used to be diabolical and wrong wells
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fargo other banks finance predatory
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lenders that can charge over 400
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interest in minority communities you
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have the big banks like wells fargo bank
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of america and others that need certain
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criteria met in order to provide
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personal loans unfortunately there are a
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group of people who do not
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fit their criteria as a borrower to
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receive the loans this group of people
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still needs loans so what happens
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an entire industry is created to help
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provide loans to these borrowers
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they're higher risk so it's only fair
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that the interest they pay is higher to
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offset the risk
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but how much risk is fair and how much
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becomes absolutely predatory
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we'll explore this question in today's
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video
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[Music]
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in our ongoing investigation we've been
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presenting evidence that banks
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make relatively few loans to people that
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live in the largely minority communities
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below i-30 in dallas but it turns out
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that some banks
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are quietly making some big loans in
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these same neighborhoods
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just not the kind you'd expect and maybe
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the kind they wouldn't want you to know
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about
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the big banks run our country they
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control our entire economy here in the
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united states
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really think about what runs our economy
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it's the ability to borrow
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without the ability to borrow our
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economy collapses 2008 being a great
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example
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it shouldn't be surprising then that the
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communities that are low income
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low business growth and higher risk
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borrowers are the areas that banks don't
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lend to
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it's the chicken or the egg problem what
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came first bad borrowers or banks
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creating a system that sparked the
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payday lenders
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one of the most impactful elements of
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america's history was the practice of
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redlining what's fascinating to me is
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how i wasn't taught this in school but
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as i've gotten older
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it's become obvious that this still has
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a profound impact on society in america
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today
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and i'd argue a central element to
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really understanding socioeconomic
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elements of society i talked about
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redlining in a previous video so i won't
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go in detail here but the practice
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basically created a natural
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divide in a city between people who are
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seen as good borrowers
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and bad borrowers unfortunately back
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then given the prevalence of racially
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driven motives
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certain groups of people were given
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unfair treatment that led to being
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categorized as a bad borrower
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when in fact it was more of a problem
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with the system itself
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redlining was a key contributing factor
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to the poverty cycle
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we're still seeing the effects of the
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poverty cycle today and poor communities
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because residents in poor communities
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generally have poor credit shaky work
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history and really high
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personal expense to income ratio it's
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hard for these people to get loans
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in comes the businesses that are as
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predatory as fake gurus on potential
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paying customers
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sure they meet a demand but that's like
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going to a pack of hungry lines with
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food and asking them
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how much are you willing to pay the
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market rate for this nice 12 ounce
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rabbit is 9.99 per pound
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i'll sell it to you for 50 a pound if
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you're hungry and don't have food the
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supplier can charge 100x the price and
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gouge you knowing that you need
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food the same can be said about money if
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someone needs money today for rent or to
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keep the lights on or to put gas in
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their car
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the person with money sets the market
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and now
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people who are desperate go there to get
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economically exploited and preyed upon
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there's always going to be an argument
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of where does the responsibility lie
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do only irresponsible people go to
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payday loans should there be a market
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rate and a cap on risky lending
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should we determine what's fair and not
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fair for a private business making a
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risky loan this news article in the
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corresponding videos focus on
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i30 and dallas but let's check out vegas
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the city i live in with over two times
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as many payday loan stores than there
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are casinos you'll find a payday loan
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storefront at almost every major
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intersection in las vegas
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the payday loan industry in nevada is
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about a half a billion dollars a year
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you know how lucrative crypto
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speculating can be when bitcoin or
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dogecoin goes up 20
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every month that's a fun investment but
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do you know what can make you even more
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money
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payday loans according to the center for
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responsible lending nevada has no
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meaningful regulation of payday lending
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there is no cap on how much interest
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lenders can charge among the highest in
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the country the average interest rate in
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nevada is a whopping 652 percent
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the national average is around 400 even
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fake gurus can't promise a 652
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return on your investment imagine having
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a hundred dollars and then just a year
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later that 100
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is now 652 the reason why this article
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is both sad
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and ironic is that banks like to present
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the idea that they don't want to be in
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the business of providing predatory
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loans to people
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but then you find out that they're the
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ones financing the businesses that
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charge the predatory rates it's
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literally like someone promoting the
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idea of a clean marketplace where fake
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gurus don't exist and get rich quick
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claims aren't allowed
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yet provide all of the software and
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marketing for the fake gurus
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it's like hold up i thought you weren't
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in this business our review of public
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records filed with the u.s securities
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and exchange commission reveals that
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almost 20 banks are funding or have
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recently funded predatory lenders
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some are big banks like wells fargo and
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bank of america others are based in
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texas like texas capital
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bank of texas veritex bank tbk bank
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amigy bank and independent bank
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from an outsider's perspective to me it
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seems like the payday lenders created
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the problem and then justified the
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predatory solution to the problem they
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created
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i understand that people going to a
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payday lender are in need of quick cash
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generally don't have good credit and are
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at high risk to bail
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and never pay off the loan but i'd like
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to argue that the payday lenders
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incentivize borrowers to not pay back
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their loan
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given that the typical customer isn't
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driven by their credit score there is no
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recourse for the lender
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that is why the interest rates are so
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high borrowers don't really care if they
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pay back the loan because a hit to their
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credit
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just isn't life-changing their credit
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probably was already low
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i think that payday loans charging a
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reasonably fair rate would actually
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increase the amount of business they do
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and would incentivize the customer to
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pay back the loan
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look at credit card companies they
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charge 20 to 30 percent on their cards
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are billion dollar organizations and
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everyone uses them most human behavior
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comes down to incentives once you
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understand someone's incentives you can
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generally predict their behavior as a
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result most borrowers renew or re-borrow
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the loans
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this explains why the cfpb found that 80
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of payday loans are taken out within two
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weeks
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of repayment of a previous payday loan
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this is an industry that recycles people
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over and over through the system because
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of how challenging it is for the
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borrower to escape the predatory nature
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of the loans once they enter into the
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cycle
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at some point the borrower is going to
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feel like they're being taken advantage
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of and just walk
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my argument is that these lenders acting
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more like a credit card company and
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offering more
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reasonable terms would allow for these
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borrowers to eventually pay up
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because they'd actually have a chance to
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pay off the loan and exit the cycle
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after one or two rollover periods what
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is their incentive to pay off the loan
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they have bad credit and they can tell
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they've entered into a cycle that is
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nearly impossible to exit
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a little hit to my credit no biggie i'm
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not going to pay off my loan
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and then the payday business complains
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about borrowers not paying here's a
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quick and simple rundown on why payday
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loan
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interest rates are so astronomical a
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borrower needs 500
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on a monday in order to pay a bill they
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go to a payday loan business and ask for
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a loan of 500
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the lender confirms that the borrower
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has a paycheck on the way and confirms
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that the loan represents 25
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or less of the monthly gross income of
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the borrower the lender gives the
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borrower 500
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and writes a check to themselves in the
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amount of 500 plus the interest rate
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let's go with a simple 20
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the check is written for 600 and has
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dated on the date of the following
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payday
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this is the lender assuring that they
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will get paid the payday comes and the
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borrower does not pay down the
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in full the lender then rolls over the
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balance and adds their 20
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interest rate to the current balance
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without getting too into the math just
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imagine the balance continuing to grow
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at a 20
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rate every two weeks this is how
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borrowers can end up paying 1500
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for a loan of five hundred dollars just
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a couple months before and so i would
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have to
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you know get a payday loan just to pay
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rent leon cox knew he needed five
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hundred dollars
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what he didn't know was how dearly it
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would cost him
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you know with a payday loan it's never
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really worth it because uh
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you get 500 and end up paying you know
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maybe 1500 back were you surprised by
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how much you had to pay for that 500
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of course credit cards are often seen as
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super high interest in a last resort to
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use in an emergency
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most credit cards are going to be around
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24 and i want to make the math simple in
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my example
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24 is 2 per month if the same borrower
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needed 500
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they would pay only 10 every month in
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interest on a credit card
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in the previous example going to a
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payday lender could result in a 1500
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charge just a couple months later with
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credit cards there is no rollover
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sure there's high interest but over the
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full year you may pay 625 dollars
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to fully pay off a 500 expense the same
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500
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expense with a payday lender could
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result in a multiple thousand dollar
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expense if the rollover happens multiple
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times i consider myself lucky to not
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ever have to deal with payday lenders
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it's an industry i didn't know much
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about until looking into this article
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further
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personally i don't even charge late fees
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to my renters because i find late fees
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on renters to be pretty predatory
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i've always been at odds with the late
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fees and charging people extra because
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they're a day or two late
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which is not even really late i pay my
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mortgage on the 7th of the month so as
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long as i get the rent by the 7th it's
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irrelevant to me
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saying that you probably can tell my
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position on the business of payday loans
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i think it's insane that this practice
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can exist
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humans can land on the moon and create
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self-driving cars but we can't figure
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out how to help people in financial need
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without sending them down
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a poverty cycle loophole once you really
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understand how the banking system works
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you start to understand why it's so
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incredibly difficult for people at the
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bottom of the food chain to escape the
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poverty cycle
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this is a game where the winners win and
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the losers struggle it's not
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fair but at least now with youtube and
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access to information being readily
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available
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you can only hope that people will
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figure out a way to leave the cycle
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hope you enjoyed the video thanks for
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watching
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