Washington Banking regulators announced the first enforcement action against a business offering short-term cash advances against borrowers' paychecks, ordering a Pennsylvania bank to stop all so-called payday lending.
Eagle National Bank, based in Upper Darby, Pa., signed the agency's consent order and agreed to cease all payday lending by June 15. The bank also agreed to make changes in its operations to ensure safety and soundness, the federal comptroller's office said Thursday. Eagle National neither admitted nor denied wrongdoing.
The action was taken out of concern for the safety and soundness of Eagle National Bank's practices and because of abuse of its national bank charter in its arrangement with payday lender Dollar Financial Group, U.S. Comptroller of the Currency John Hawke Jr. said.
Eagle National wasn't exercising control over Dollar Financial's business and was merely "renting out its charter ... for the purpose of evading state law," Hawke said.
Dollar Financial failed to consistently follow the bank's guidelines for extending credit and failed to provide adequate disclosures and privacy notices to consumers, according to Hawke's office, which is part of the Treasury Department.
Eagle National's payday loan volume jumped from $3 million in 1995 to about $400 million last year, according to the agency. Each payday borrower from Dollar Financial is charged a fee of $15 to $20 per $100 borrowed.