Consumer Federation of America Applauds Comptroller Action to Halt Rent-A-Bank Payday Lending by Peoples National Bank of Paris, TX

January 31, 2003
Jean Ann Fox, 757-867-7523

The Consumer Federation of America today praised the Comptroller of the Currency for halting payday loan activities by Peoples National Bank, of Paris, Texas in two states and fining the bank $175,000. The Comptroller charged the bank, which partnered with Advance America and National Cash Advance to make payday loans in North Carolina and Pennsylvania, with engaging in unsafe and unsound practices and violating consumer protection laws.

"CFA applauds the Comptroller of the Currency for stopping rent-a-bank payday lending by national banks," stated Jean Ann Fox, CFA Director of Consumer Protection. "Payday lenders must not be allowed to evade state usury laws and consumer protections by this misuse of bank charters."

Payday loans are exorbitantly expensive loans based on a personal check held until payday for deposit. According to a 2001 CFA/US PIRG survey of payday loans in Pennsylvania, Advance America's National Cash Advance outlets were charging $17 to borrow $100 for two-weeks, which translates to an annual interest rate of 442%. The two-week or less payday loan terms frequently trap borrowers in perpetual debt, as they repeatedly "roll over" loans they cannot afford to repay. Holding a borrower's personal check exposes borrowers to coercive collection tactics when they are unable to make good on the checks that are the basis for the loan.

In announcing today's action, Comptroller of the Currency John D. Hawke stated, "We have been greatly concerned with arrangements in which national banks essentially rent out their charters to third parties who want to evade state and local consumer protection laws. The preemption privileges of national banks derive from the Constitution and are not a commodity that can be transferred for a fee to nonbank lenders."

The OCC Consent Orders with Peoples National Bank and Advance America require an end to payday lending through this partnership as of February 28 in North Carolina and by March 31st in Pennsylvania.

Peoples National Bank, Paris, Texas has been making payday loans in partnership with Advance America's National Cash Advance in Pennsylvania and with National Cash Advance and Advance America in North Carolina, states where payday loans are illegal under small loan laws and rate caps. Advance America partners with state-chartered, FDIC insured banks to make loans in Alabama, Arkansas, and Georgia.

In the last year, the Comptroller of the Currency has halted payday loan activities by Eagle National Bank with Dollar Financial Group, Goleta National Bank with ACE Cash Express, and by First National Bank in Brookings, SD which partnered with Cash America pawn shops and First American Cash Advance. With the press announcement that the Office of Thrift Supervision has ordered First Place Bank in Warren, Ohio to end its payday loan arrangements with Check'n Go in Texas, no federally chartered financial institutions will be in the payday loan market.

Fox noted that the Comptroller's efforts to stop national banks from renting their charters is encouraging lenders to turn to state chartered, FDIC-insured banks for partnerships. Earlier this week the FDIC announced draft guidelines for FDIC-insured banks involved in payday lending without clearly stating that federally-insured banks cannot rent out their bank powers to pawn shops, check cashers, or payday lenders.

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Consumer Federation of America is a nonprofit association of about 300 pro-consumer organizations and was organized in 1968 to advance the consumer interest.

CFA has published numerous reports on the payday loan industry and rent-a-bank arrangements. Please find reports at