Banks and Payday Loans

Minneapolis-based U.S. Bancorp, Wells Fargo & Co. of San Francisco, and Fifth Third Bancorp of Cincinnati — are now marketing payday loan type products, with triple-digit interest rates, to their checking account customers.

“Banks are in a strong position to steal a big chunk of the $35 billion-a-year payday lending market — with its estimated $7.3 billion in fees from borrowers, say industry analysts.”

The banks are charging $10 per $100. These fees claim to be half (for the record, they’re not) of what a typical payday lender would charge. They estimate the typical payday lender charges about $17 per $100. Banks fees should be lower. They incur less risk than traditional payday lenders. Banks own the checking accounts and may additionally run credit reports for approval. Of course, they will have lower delinquencies due to smaller risk pool and full access to the borrowers checking account for collections.

When banks offer payday loans, the “on the fence” general public will start to accept the payday loan product. Let’s face it, the industry is never going to change a self righteous, bleeding heart liberals’ mind. All we can do is go after the middle 80%.

The only issue I have today is that banks don’t operate under state law. They can offer payday loans in the 15 “black out” states like New York, New Jersey, North Carolina, Georgia, Arkansas among them. These states should open their doors. It’s discrimination, otherwise.

I think the industry should use this as a sounding board. Let the banks offer payday loans. Let anyone offer cash advances.

You can read the full article in Minneapolis Star Tribune titled “Biggest Banks Stepping into the Payday Loan Arena“.

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