Traditional Banks Offering Alternative Payday Loans

The Consumer Overdraft Protection Fair Practices Act and the Credit Card Accountability, Responsibility and Disclosure Act may have encouraged banks to offer alternative loans, such as payday loans, causing competition among payday loans direct lenders and national banks observes Solomon Finance.

Because these enactments have muffled bank’s major sources of revenue, marked with Bank of America’s recent declaration that the overdraft fee legislation will be put into effect this coming summer, banks are reducing risks and pursuing other sources of income.  These changes include raising interest rates on credit cards, offering less free checking accounts, limiting student loans, requiring more spending to engage in credit card perks and competing against payday lenders by increasingly marketing payday loan type products under different names such as Direct Deposit Advance, branded by Wells Fargo.

As lending options continue to narrow in availability, national banks are not the only institutions competing for payday loan customers: credit unions such as Kinecta Federal Credit Union are also offering these types of services.

Short term cash loans are not the only thing that payday lenders and national banks have in common:  Both have been the largest contributing efforts to challenge federal financial regulations.  However, national banks may have an unfair advantage, argues Steven Schlein, spokesperson for the CFSA, as he mentions that national banks are exempt from state laws limiting interest rates. He adds, “banks caused the financial meltdown, and they’re spending millions and millions to spare themselves from tighter regulation while throwing the consumer lending industry under the bus,” he said. “They’re trying to divert attention to us.”

Although extra attention has been given to payday loan lenders during these financial reforms, it is unlikely that they will be significantly impacted in comparison to 2006, when Congress passed a bill that capped interest rates to 36% for active military members.  An interest rate cap at 36% on small loans ranging from a payday loan amount of $500, on a typical two week pay period term would yield insufficient profits to sustain business operations.

The industry is constantly changing: by subscribing to finance newsletters or reading industry payday loans blogs, one can stay informed and educated about traditional and untraditional lending options.

The new credit card laws were made primarily to make credit card terms clear and fair so that customers understood what they were getting themselves into, giving them the opportunity to opt in or out of certain conditions.  However, despite common misunderstanding, the new credit card laws may affect card holders more negatively than they may do positively: because banks are forced to cut back on lending and accept less customers, they have to make up for it in other ways by imposing charges and restrictions to those whom they do accept as patrons.   The good news is that many of these changes have to be disclosed to the customer ahead of time – so just make sure that you have your eyes and ears out for listening!  Below are five not-so-great ways in which the new credit card laws can affect you:

1. Interest Rate Increases: Although the new credit card law prohibits interest rate hikes for 12 months for new accounts, existing card holders may have their interest rates raised with some over 20%, even for for those who have been on time with payments. The good news is that if this does happen, the bank has to notify you ahead of time, 45 days to be exact.  So watch out for the mail to see if this is going to happen!

2.  Credit Card Fee Increases: Banks are now charging new fees such as over-limit, inactivity (if you don’t use your account) or low-balance fees.   Keep in mind that banks have to disclose these fees to you to give you a chance to agree, opt out, or close your card.  Again, fees have to be disclosed ahead of time – make sure you’re in the loop!

“Five Ways the New Credit Card Laws Can Affect You”

3.  Over the Limit Fees: Banks now have to get your permission to let you go over your card limit or charge you the corresponding fees.

4.  Under Age 21 Restrictions: If you are under 21, you have to prove that you have your own stream of income needed to pay your credit card bills, otherwise, you will need a cosigner.  If you are thinking of cosigning for someone, you may want to assess the situation and keep an eye on the account because this could affect your credit directly.

5. Credit Card Rewards Changes: Banks are giving less perks and requiring more out of you to get them.  For example, to get certain perks, you may have to spend more on your credit card or have your interest rates raised.  If you’re into perks, shop compare different card perks and focus on the ones that give you the most goodies.

“Card Act – Major Provisions…..”

These changes can be tough for many, however, the good news is that they have to be clearly disclosed to you before they can take effect. So stay informed and take control!

New credit card regulations, effective Monday February 22, 2010, may be able to give customers more rights to reasonable fees, stable, but not necessarily low, interest rates, and contracts in addition to providing billing statements, and terms that are easier to understand.   These credit card reforms were implemented to prevent abusive and exploitative practices by credit card companies that could result in excessive fees and debt.

Let you know ahead of time Some of these new regulations include requiring credit card companies to give 45 days of notice before increasing interest rates or fees.  As a result, consumers can apply payments to balances with higher interest rates, and to send bills 21 days before their due date in the mail.   In addition, the new regulations disallow the increase of interest rates to customers just because they make late payments on related bills.

Even with these new laws in place, there are still loopholes that allow finance companies to come up with other ways to extract income from consumers through other types of costs and fees.  Because of this cat and mouse game, lawmakers are encouraging the creation of a Consumer Financial Protection Agency ( CFPA ) as a legal entity to protect the rights of consumers.

This financial news posting was brought to you by Pay1Day.com, a direct payday lender offering fast, easy, and convenient payday loans.