Due in part to looming and uncertain regulations this year big banks are starting to look to new products and services in an attempt to minimize potential losses in the wake of these upcoming regulatory changes, reports Solomon Finance. Whether these changes will be profitable remains to be seen, but actions are already being taken to stop big banks like Wells Fargo and U.S. Bank from offering loans similar to those offered by the Payday Loan Industry. A recent report from the Center For Responsible Lending states, “Wells Fargo, which recently acquired Wachovia, has offered its Direct Deposit Advance product since 1994.….. This growing trend may soon accelerate.”
One of the numerous concerns regarding these types of short-term loans being offered at big banks is this: whereas payday advance lenders are closely regulated by state laws, big banks are not. In fact, the same direct payday lenders, when offered by big banks, are regulated by the O.C.C. and are exempt to state regulations, some of which cap payday loans at 36% APR. This leaves big banks free to offer the exact same product as payday lenders, but at even higher APRs! In some states, such as Ohio, this practice has been going on for some time now and is quite frustrating to Payday Lenders, as demonstrated in this “comment of the day” from the Payday Pundit:
“I own a payday lending store operating in Ohio and Fifth Third has become a competitor… and they charge them (customer) $50. As a licensed payday lender operating under the existing law in Ohio I am only allowed to charge that customer about $28 to $30… How are they allowed to operate in our arena and not follow the same rules?”
Regardless of the outcome of banks offering short-term loans, consistent regulation applied to big banks and payday loan operators alike or deregulation of payday lending altogether should be considered to achieve an even-level playing ground. To see large banks dodging the same legislation that forced so many small business owners to close their doors is unfair. What is needed is balanced and fair regulation applied to all businesses, large or small or have no regulation at all.
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