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Just what we need? Big banks offer payday loans by another name

 
 
Reply Sun 4 Sep, 2011 10:53 am
August 23, 2011 3:44 PM
Big banks offer payday loans by another name

(AP) NEW YORK — Payday loans may be coming to a bank near you.

They're marketed under a different name, but a handful of major banks already let customers borrow against their paychecks for a fee. And there are signs the option may soon become more widely available.

Banks say their loans are intended for emergencies and they are quick to distance themselves from the payday lending industry. But consumer advocates say these direct deposit loans — as banks prefer to call them — bear the same predatory trademarks as the payday loans commonly found in low-income neighborhoods.

Specifically: Fees that amount to triple-digit interest rates, short repayment periods and the potential to ensnare customers in a cycle of debt.

With a traditional payday loan, for example, a customer might pay $16 to borrow $100. If the loan is due in two weeks, that translates into an annual interest rate of 417 percent.

Since the borrowers who use payday loans are often struggling to get by, it's common for them to seek another loan by the time of their next paycheck. Critics say this creates a cycle where borrowers continually fork over fees to stay afloat.

Banks say their direct deposit loans are different because they come with safeguards to prevent such overreliance.

Wells Fargo, for example, notes customers can only borrow up to half their direct deposit amount or $500, whichever is less.

Its fees are cheaper too, at $7.50 for every $100 borrowed — although that still amounts to a 261 percent annualized interest rate over the typical pay cycle. The amount of the advance and the fee are automatically deducted from the next direct deposit.

Wells Fargo admits that it's an expensive form of credit intended only for short term use. But customers can max out their loans continually for up to six months before they're cut off. Then after a one-month "cooling off" period, they can resume taking advances.

U.S. Bank, which has more than 3,000 branches mostly in the Midwest and West, and Fifth Third Bank, which operates 1,300 branches in the Midwest and South, offer loans with similar terms and restrictions.

"When you're allowed to be indebted for six billing cycles in a row, that's not a short-term loan," says Uriah King, vice president for state policy at the Center for Responsible Lending, an advocacy group based in North Carolina. "They call them short-term loans, but that's just not how they're used. And banks know that."

Even if customers can only borrow half the amount of their next direct deposit, that can be a significant setback if they're living paycheck to paycheck, King says. They'll likely need to take another loan to continue covering living expenses.

That idea is supported by a study by the Center for Responsible Lending that found direct deposit loan users relied on them for almost six months of the year. About one out of every four borrowers was a Social Security recipient.

It's not clear whether the weak economy has increased the use of payday loans. But a group that represents alternative financial services such as payday loans and check cashing, the Community Financial Services Association of America, says that demand for short-term credit has been rising at a steady clip in recent years.

This spring, Regions Financial became the latest major bank to offer the direct deposit loans. The bank, which operates about 1,800 branches in the South and Midwest and Texas, also announced that it would begin offering check cashing and prepaid debit cards in the near future.

The rollout of the products comes at a key juncture for the industry. Banks are under intense pressure to find new ways to squeeze profits from checking accounts in the face of new regulations.

One particularly lucrative revenue source — overdraft fees — was tightened about a year ago under a rule intended to protect consumers. The rule prohibits banks from charging overdraft fees without first obtaining a customer's active consent for such coverage.

The fees, which are disproportionately incurred by low-income customers, generated an estimated $37 billion in 2009, according to Moebs Services Inc.

Now consumer advocates fear banks will start nudging these same customers toward direct deposit loans.

Another concern is that direct deposit loans are tantalizingly easy to access for customers who need cash in a hurry. Because potential borrowers must already have an account with the bank, there's no application process and cash can be immediately deposited into checking accounts.

The banks' main regulator, the Office of the Comptroller of the Currency, says it has received requests for guidance on direct deposit loans and overdraft programs. In June, the agency issued proposed guidelines saying that banks should observe "prudent limitations" and that action should be taken when banks detect "excessive usage" by customers.

The agency does not spell out what constitutes prudent or excessive. But it noted that certain practices have raised supervisory concerns. Among them: the steering of customers who rely on Social Security and other federal benefits toward the loans and a failure to monitor accounts for excessive use.

Representatives for each of the four banks declined to disclose what percentage of its direct deposit loan customers are repeat users. They also declined to disclose how widely the loans are used.

The banks stress that they reach out to customers who show signs of becoming overly dependent by speaking with them about whether another form of credit might be more appropriate.

Wells Fargo also notes that it made changes this year to make the loans more consumer friendly. A spokeswoman for the bank, Richele Messick, said that fees were previously higher at $10 for every $100. Customers could also max out advances continually for a year before the bank cut them off.

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Type: Discussion • Score: 3 • Views: 1,090 • Replies: 8
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Rockhead
 
  1  
Reply Sun 4 Sep, 2011 11:45 am
@BumbleBeeBoogie,
I'm not allowed to talk about banks any more.

(they suck)
0 Replies
 
Fido
 
  1  
Reply Sun 4 Sep, 2011 12:40 pm
@BumbleBeeBoogie,
B; don't you doubt that banks and businesses have organized this situation where no one has enough to make ends meet and must forever rely on credit... People live hand to mouth on short wages and if something comes up, then they must get on the needle to survive which makes them even shorter... The people who hire them need credit for everything they do, so profit is always limited by interest which means they force wages down to maximize their profit out of which they pay interest... Governments need to borrow because they have not the courage to tax, and they loan money for free to the very people who loan it at interest to the government... I heard that finance accounts for over eighty percent of the profit in this country and for that it does not lift a finger, and everyone, every where must carry it... Don't leave home without it??? Who has a choice??? My Motherinlaw remortaged their house in the 60's and in the process bought a new stove and refrigerator... Since in all the years from that time they have never managed to pay off the house, they must also still be paying for the stove and refrigerator long after they have left for the dump... She has been in hospital and may now always be under some care; and my daughter found one credit card, cancelled for which she is paying 27% interest and a 9 dollar a month fee for servicing a closed account... There ought to be a law and a noose at the end of it for people who would sell such stuff to Seniors... She isn't buying anything but money, and it is a debt she will not ever live to pay off... This is how the nation is robbed, and our government facilitates it...
BumbleBeeBoogie
 
  1  
Reply Sun 4 Sep, 2011 01:32 pm
@Fido,
I've never been violent but I wouldn't mind hanging some of these bastards. Want to help me?

BBB
Fido
 
  1  
Reply Sun 4 Sep, 2011 04:33 pm
@BumbleBeeBoogie,
BumbleBeeBoogie wrote:

I've never been violent but I wouldn't mind hanging some of these bastards. Want to help me?

BBB
Why bother??? Give them enough rope, and they will hang themselves, and that is the course our government is on... They have an idealogical affection for capitalism... It says nothing in the constitution about the government existing to keep capitalism on life supports, or of the government stepping on all our rights so that enterprise is free... What the government does it does as a captive of an ideology that it can never bring itself to objectively consider... Our government is capitalism, and capitalism is our government, and while this is like the Ancient Constitution of England with its mutually supporting interests, the result will be the same, that when it is time to sweep away the old order, it will be short work and done in a day....
0 Replies
 
roger
 
  1  
Reply Sun 4 Sep, 2011 06:03 pm
On the other hand, there are reasons for people taking out payday loans. One of those reasons is that they have such lousy credit that that is all they can get. One reason for having bad credit is a failure to pay back loans. If you are going to loan to people that don't understand about paying it back, you've got to get enough interest to compensate for the risk. Anybody want to invest in Greek bonds? How much return would you need to persuade you to part with the cash?
Fido
 
  1  
Reply Mon 5 Sep, 2011 02:48 pm
@roger,
roger wrote:

On the other hand, there are reasons for people taking out payday loans. One of those reasons is that they have such lousy credit that that is all they can get. One reason for having bad credit is a failure to pay back loans. If you are going to loan to people that don't understand about paying it back, you've got to get enough interest to compensate for the risk. Anybody want to invest in Greek bonds? How much return would you need to persuade you to part with the cash?

It is hard to call the inevitable conclusion of class warfare a conspiracy, but they have worked well together as a class to achieve this result; of us working for so little that we must rely on credit, and then working so hard to pay for the money we borrow that we never get our heads above water... A friend used to tell me that credit was a good servant but a bad master... I don't even think it is a good servant... Primitive peoples never had all that much, but in their life times could support themselves into old age with a fair amount of ease... We work so mach harder than so many of them, with nothing but greater worries to show for it... The situation is contrived... When government loans to the rich the very money it will borrow from them, when it could tax them for support, the situation is contrived... When people with their wages cannot have their homes and autos without resort to usary, and even must rely on credit for food, and gasoline -balancing all on the edge of disaster we are living as if cornered animals having anxiety and hoplesness as our only comforts...
roger
 
  1  
Reply Mon 5 Sep, 2011 05:00 pm
@Fido,
Reread that, and see if it still seems to make any kind of sense.
Fido
 
  1  
Reply Tue 6 Sep, 2011 12:19 pm
@roger,
roger wrote:

Reread that, and see if it still seems to make any kind of sense.
I do not know what you are having problems with... As some would define a nation one could define a class within a nation, and nations can often work at cross purposes with others even when it is against their own ultimate purpose...

What the capitalist class is doing will destroy this nation, and them- if they are allowed to do so, but since we are ideologically hooked on capitalism and can imagine no other way of life, our paradigm blinds us and our imagination is useless...

If it were a conspriacy, it would be thought out; but a class or nation of people within this nation usually acts unconsciously, and though in detail they cooperate and conspire, the mostly do what seem natural to them... Do you get my drift??
0 Replies
 
 

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