Payday Loans Highlight Banks’ Predatory Behavior
Posted on | October 11, 2009 | No Comments
Advocacy groups and politicians should listen more to the people they claim to serve. The people are not clamoring for payday loan regulation. What they are overwhelmingly seeking is to rein in the aggressive and predatory fee harvesting by the so-called legitimate financial institutions – banks. As maligned as the payday industry is, when compared to banks, payday lenders are all too often the less expensive option for short term lending.
According to an October 5, 2009, Huffington Post report by Shahien Nasiripour, “banks and credit unions made an eye-popping $24 billion in overdraft fees in 2008, according to a report released Tuesday by the nonprofit Center for Responsible Lending,” which is “a 35 percent increase from 2006.” This year, as reported by Sarah Gilbert for WalletPop on October 7, 2009, “Banks will charge a shameful $38.5 billion in overdraft fees.” The Huffington Post report, citing data from economic research firm Moebs Services, revealed that “nearly half of all banks and credit unions make more money from overdraft services than they make in profits.”
As much as advocacy groups and politicians despise the payday loan, the fact of the matter is that payday loans are often a better deal for consumers than dealing with banks and their fee-harvesting overdraft trickery. Rather than posting deposits and withdrawals consecutively, many banks shuffle the deck and deal the cards in their favor – meaning they order things so that they can extract the maximum number of overdraft fees possible. And, since they’ve raised fees to incredibly high levels, ranging well over $30 in many banks, getting hit by multiple fees in a single day simply because banks choose to post in an order more advantageous for fee collection, rather than chronologically, can be financially devastating for the average person.
In pure cost of credit, payday loans can be significantly cheaper than the vile short-term loans forced upon consumers under the deceptive name of overdraft protection. Customers typically are not allowed to opt out of these loans at terms that would make Louie the Loanshark cringe in shame. For example, as noted in a September 29, 2009, USA Today article, “on a median debit card overdraft of $20, in which the lender charges a fee of $27, the APR translates to 3,520%, if the credit is paid back in two weeks, says a 2008 FDIC report.”
However, according to that same USA Today article, payday lenders typically charge “an APR of 391% to 449%, assuming a $15 to $17.25 fee per $100 borrowed. And, the consumer chooses to take on the loan, rather being tricked into it by deposit and withdrawal posting techniques devised to ensure the maximum possible overdraft charges. Of course, in a cynical world, one may be inclined to believe that the reason politicians rail against payday lenders while banks abuse their customers with stunning regularity has to do with the fact that, as noted in an October 7, 2009, USA Today editorial, commercial banks are “among the top 20 of all industry donors” to political campaigns, having already this year “deluged federal candidates, mostly members of Congress, with more than $3.6 million in campaign contributions.”
Those seeking a short-term personal loan or in need of a cash loan within the typical payday lending range should do the research and run the numbers themselves, rather than automatically take the word of those accepting money from the banking industry, which is desperate to present itself as the one of the few legitimate lending options for the average consumer and, with all the losses they’ve incurred via their poor and risky financial decisions, desperate to be allowed to continue to fiscally abuse their customers.
Guest Author: Sharon Secor, Freelance Writer
Practicing Resistance and Raising Revolutionaries
http://sharonsecor.blogspot.com
Staff Writer, Direct Lending Solutions
http://www.directlendingsolutions.com
Blogging at Digital Journal
http://www.digitaljournal.com/user/165857/blog
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