Let's Make a Deal
I’ve got a deal for you: when you’re in a pinch, I will loan you $30 but when you try to repay me a day later, you will owe me $88. No, this isn’t a payday loan or an auto title loan. These are the terms major banks insist on every day with millions of consumers through overdraft fees and loans. Consumers pay banks $17.5 billion per year in fees on $15.8 billion in overdraft loans, as the Center for Responsible Lending describes it in a new report. For every dollar the bank loans a customer, the bank asks for an average of $1.94 in fees (not including the $1 the customer owes on the loan).
And forget about asking for the annual interest rate on these incredibly short-term loans. The Federal Reserve considered issuing regulations requiring banks to report this information to their customers under the Truth-in-Lending Act, but banks successfully lobbied against them. Fortunately, the House Financial Services Committee will be holding a hearing today on H.R. 946, the Consumer Overdraft Protection Fair Practices Act. This legislation would make such reporting mandatory. You can watch the hearing here.
I would think numbers like this would help people understand why products like payday loans are so popular. Flat fee (typically $15-$16 per $100). No fine print, etc. Terms are simple, understood by customers, and displayed prominently. And, most importantly, nothing about the fees are "hidden." Customers who take out payday loans make a concious decision to do so.
July 13, 2007 12:40 PM | Reply | Permalink
Lyndsey (is that you?),
They're probably going to get more and more popular unfortunately.
"Customers who take out payday loans make a conscious decision to do so"
This sounds like "Sopranos" logic. Prey on the weak and despise them for it at the same time.
They may be making conscious decisions, but they probably did not make a conscious decision to be vulnerable and become prey - don't you think?
July 14, 2007 11:18 AM | Reply | Permalink