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