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Insured Institutions and the Payday Market

Subprime lending in insured depository institutions is most commonly associated with auto, home equity, mortgage, and credit card lending. More recently, however, insured institutions have ventured into the payday lending arena.

Payday lending is not delineated in either bank Reports of Condition and Income or Thrift Financial Reports, but periodic surveys conducted by the FDIC indicate that relatively few insured depository institutions are currently involved in payday lending. However, there is no universal definition for payday lending, and some insured depository institutions have recently implemented overdraft lending programs that may, depending on the specifics of the program, exhibit characteristics similar to payday lending programs.

Insured depository institutions that are involved in payday lending have used various strategies to establish a presence in the market. Some have formed joint ventures with companies specializing in payday lending, while others have initiated payday lending programs internally. Insured institutions have extended loans directly to payday lenders, purchased payday loans from loan brokers, or lent to payday specialty lenders in the form of loan participations, warehouse lines, liquidity facilities, or dealer lines. While there is no evidence of an established asset-backed securities market for payday lending, some insured depository institutions have explored the possibility of securitizing and selling payday loans.

source: fdic.gov

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