First Bank of Delaware Puts End to Payday Loans
Under pressure from federal regulators, First Bank of Delaware plans to end its involvement with with payday loans and cash advances.
The announcement by the Brandywine Hundred-based bank follows a similar move late last year by Rehoboth Beach-based County Bank. Both banks made the loans available through partner companies that operate storefront locations nationwide.
In a brief statement released late Tuesday, First Bank of Delaware acknowledged that the Federal Deposit Insurance Corp. had ordered the bank to stop its payday-lending involvement, unless the bank could fix unspecified problems with oversight of the lending. As a result of the regulatory pressure, the bank said it has decided to stop payday lending “in a time period that has yet to be determined.�?
Payday loans have drawn strong criticism from consumer activists because they can carry interest charges of as high as 900 percent. They are known as payday advance loans because borrowers pledge to pay back the amount borrowed with future paychecks.
The cash loans are intended to be short-term, but borrowers sometimes extend them for months, incurring more interest. Concern about the practice of extended payday loans led federal bank regulators in 2005 to limit the duration of the loans to no more than 90 days in a 12-month period.