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Wall Street to Main Street: Tracing How Big Banks Fund Payday Lending

Adam Rust's picture

Posted April 11, 2013

The simple truth is that big banks play a vital role in making it possible for payday lending to continue to exist. The debt financing provided by Wall Street allows these firms to cash flow their business.

The support for World Acceptance, through $680 million in loans and

lines of credit, comes from a group of banks led by Wells Fargo.

World Acceptance has a hand throughout the alternative high-cost consumer finance sector. They provide small loans, credit life insurance, credit property insurance, credit accident insurance, low-income tax preparation, and private unemployment insurance. They also market automobile club memberships. One of their subsidiaries makes software to help other non-bank lenders provide consumer loans. The company extended 2.4 million loans in its 1,173 offices in 2012.

On November 19, 2012, a consortium of lenders amended their 2010 agreement to provide World Acceptance with $680 million in revolving credit.

Eight banks committed $680 millions in loans to World Acceptance in 2010.

Most of these banks are regulated by the Office of the Comptroller of the Currency.

It might not be surprising to some people that big banks would be willing to finance these kinds of companies. After all, the only way that they judge their results is by the standard of increasing shareholder equity. Nonetheless, people should know that this is commonplace. In fact, I think its a fair question to ask how closely to view the relationship between a bank like Wells or TD and a company like World Acceptance. Is it possible to have clean hands? Would an equity position - a means that commonly finances start ups in the AFS space - a different ethical proposition? Does any involvement at all imply a complicity?