Payday Loan Industry vs Banks: Follow the Money!

A reporter for the Baltimore Sun called me regarding my thoughts on the move by banks into the payday loan space. Banks are  making loans to customers based on their direct deposit paychecks. These “payday loans” are then repaid in full – both principal and fees – once the direct deposit clears. It’s VERY common for this bank customer to take out another loan. If you analyze the numbers, you soon calculate these bank customers pay $900 in interest to borrow $500 from the bank for less than 6 months – an APR of 365% . It’s been reported that Social Security recipients comprise one-quarter of all these bank captured borrowers.

The Baltimore Sun reporter repeatedly asked if I thought these bank products should be outlawed or severely restricted. She reminded me that the bank has zero risk! After all, these bank payday loan type products are only offered to bank customers having direct deposit of their paycheck directly into their checking account. Therefore, the bank “gets first dibs” on their loan principal and fees.

My answer to her? No! Regulators and so-called “do-gooders” don’t understand the needs of the marketplace. Access to small, non-collateralized loans must continue to exist.

HOWEVER, FULL DISCLOSURE MUST BE EMPHASIZED! Complete disclosure of all terms, fees and charges in an EASILY understood format must be enforced. Insist on disclosure and let the marketplace decide what products and services  offer the best solution for an individual consumer.

The money behind the attacks on the payday loan industry is provided by competitors like banks, credit unions, and others. As Deep Throat said, “Follow the Money.”


Read the Wall Street Journal Article that came out a few days after this Post

Comments ( 5 )
  • Sugel says:

    .A shop window in advertises payday loans….A payday loan also called a paycheck advance is a small short-term that is intended to cover a borrowers expenses until his or her next payday. regarding payday loans varies widely between different countries and within the between different states..To prevent unreasonable and excessive rates of interest some limit the APR that any lender including payday lenders can charge.

  • Rick Gearhart says:

    The movement by the banks into the PDL space is just another “WAKE UP” call for the PDL Providers to provide an integrated program that allows their customers to Open their own account in-house, have direct deposit capabilities and in-house electronic PAYMENT Processing .

    What many, if not most operators in the PDL industry have failed to realize, basically because of historic operations from a Bully Pulpit demanding cash payment….is that the banks are intimately involved with consumer purchasing, spending and payment habits. For years the consumer has been consistantly taught and manipulated to utilize electronic payments, i.e. Debit / Credit Cards, Direct Deposit, Net payments etc. It has worked. In the USA, Upwards of 70% + of all payment, purchases and spending is done electronically…with the Debit / Checking Cards leading the pack.

    Additionally, the PDL loan industry has historically been denied these payments methods (by the banks / Card & Payment Associations). Guess what? This new move by the banks…WILL ALLOW the bank to utilize those payment methods…thus giving them an even greater advantage and pulling power towards their existing & new customers…because their product is better fashioned for ease, familiarity and simplicity, and tied directly to the payment methods, habits and spending trends that they have taught the consumer over the years.

    The need for additional cash affects everyone at one time or another….thus the popularity of the PDL Industry, and recognition, entrance and acceptance by the banks….However, the desire to be addressed as a NORMAL consumer, who is allowed to spend his money and make his payments in the most commonly accepted and preferred ways ….has not been addressed or accepted by the PDL Industry…again, primarily because of the Bully Pulpit mentality and exclusion from services directed toward them by the banking / payments industry.

    These services DO Exist for the PDL Industry, and can be easily integrated into their operational formats. Every business should make it easy for the consumer to do business with them…that includes making it easy for the consumer to pay his money…in whatever form it may take. That may be one of the many reasons there are over 33 million business locations globally who accept electronic payments. Now you can add the banks to that loop.

  • Gracy says:

    Just surfing through the net to find some useful information about the payday loans lenders, got your blog, really nice post and well drafted..:) Keep it up. will surely come back for more informational articles.

  • Emile says:

    Isn’t there a legal issue with banks charging that much interest?