Posts Tagged ‘banks’


Who Are The Banks Lending To? Can You Really Believe What You Hear?

Posted by Emily

Who are the companies lending money to the payday loan lenders? They are the banks, of course.  They are certainly not lending  to families and small business. In fact, these are the same banks who were bailed out by the government.  There are published reports where you will find quotes from these very bank lenders calling the payday loan industry a “bottom feeder” industry. So why are they doing business with them? For the huge profit. These banks are by no means hurting, but are making great profit at servicing this industry. Bank of America claims they treat “payday lenders as a discouraged industry.” But when their doors are closed is that really true?

These same banks have become slow to provide home loans for families and lend to small businesses, but instead have provided the financing for payday lending companies with whom they claim to look down upon and have distant dealings with.

This week in the Seattle Times, Bank of America stated “We treat payday lenders as a discouraged industry” “We have limited appetite for doing business with them.” But according to the chart below, you can see where a good portion of the money is going.

In their defense, banks, including B of A have begun to impose stricter rules for compliance . They do appear to try to choose reputable payday lending companies, including some large publicly traded companies that have good compliance, consumer disclosure and collections practices. Their claim is that they ‘strive to do business with only the most responsible of these lenders.”

When banks refuse to have reasonable lending terms for families and homeowners many have gone to nontraditional financial institutions, such as payday loan companies, for short term personal loans.  In many cases the lending fees are high because of the banks finance fee to the lender. For many, these are the only financial institutions that are easily accessible are check cashers, pawn shops and payday loan centers.

So why deal with “bottom feeders”? Simply put, the banks are under scrutiny from the government and are losing normal streams  of revenue that was enjoyed in the past because of new financial regulations. They have a strong need for new ways to make money and lending to payday lenders is one great resource for banks. Their comments about the industry being so distasteful, and how their appetite is limited in doing business with lenders really is a joke. The payday lending industry has brought them a great avenue for new revenue and they are enjoying it as the payday lending industry continues to move full speed ahead. It cannot be ignored that the payday lending industry is extremely lucrative especially where banks come in. For example, a normal $500 payday loan from the banks would come with an APR of about 287 percent.

‘Kevin Connor of the nonpartisan Public Accountability Initiative found that banks have extended $1.5 billion in credit over the past few years to publicly traded payday loan companies. They estimate available credit to the industry overall is as much as double that when privately held payday loan firms are included.’

Reports estimate that there are over  22,000 payday loan stores nationwide which make $30 billion in loans each year.

The banks borrow from the Federal Reserve at low rates, but last year the banks collected $70 million in interest payments from payday centers during the year of 2009 alone. At best their negative connotations on the industry that is helping sustain them is really all about reputation.

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Financial Crisis Inquiry Commission Holds Hearing This Week

Posted by Sara M. Varese

The Financial Crisis Inquiry Commission will be holding a hearing with former bankers, mortgage executives, and federal officials to examine the cause for the economic meltdown and the housing bubble, quoted as being the ” most severe in history” by federal reserve chairman, Alan Greenspan.

During the hearing, Greenspan will be questioned why the feds did not increase the benchmark interest rate in time to stop the housing crisis which eventually led to a large number of foreclosures in 2008.  Another major issue that will be addressed is how the trillions of dollars lent to the sub prime industry also contributed to the meltdown which will include deceptive mortgage practices and predatory lending.

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Big Banks Prepare for Regulation E

Posted by Sara M. Varese

Written by contribution author: Gabriel Rodriguez

According to a Press Release from the United States Federal Reserve Board, big banks are in for some big changes this summer. Regulation E, in summary, is a new regulation that will go into effect July 1st, 2010. This regulation prohibits banking institutions from charging “Overdraft” or “NSF” fees to a customer without receiving consent from the customer to “Opt-In” to the bank’s “Overdraft Services”.Banks Regulation E

What this means for customers is they now have a choice in whether or not they would like to have the option to overdraft on their checking or savings account, or rather to simply be “declined” on the transaction that would overdraft the customer’s account.

What this means for big banks is a little more complex, and certainly unsure. A national payday Industry. Opponents to short-term lending often cite “outrageous” APR percentages and predatory practices as the primary factors in the push for regulation, when in reality the same calculations applied to overdraft/NSF fees would prove the APR percentages to be higher than the cash advance loan products that they criticize.

For example (from the ABC News Associated Press) when looking at fees for $100, the typical $15 fee associated with a payday loan equates to 391% APR, whereas a $29 NSF charge would figure out to be 755% APR. But no matter how you look at it, banks are constantly gathering support against any threats to their NSF income, and in some cases they are beginning to offer small loans with terms very similar to the short-term loan product in order to ensure the minimization of potential NSF losses over the upcoming years.

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Payday Loans Debate, an Alternative Loan On the Rise

Posted by Sara M. Varese

February 26, 2010 Los Angeles, CA. As new consumer protection acts decrease traditional lending opportunities, alternative loans, namely payday loans, have been on the rise, along with debate from both the consumer and lender standpoint regarding policy and practice. No Credit Check Payday Loan

Comparing to traditional loans,  payday advance loans costs can be attributed to the ease and speed of acquisition with minimal requirements of income, credit history, and housing, along with the resources needed to dispatch loans more easily and faster, usually under one business day.  Because of these inherent risks, payday loans are offered at a higher cost. Nonetheless, growing controversy continues as the rate of borrowers taking out payday loans increases, questioning the loan’s interest rate, fees, and policy as well as their necessity.

The usual payday loan fees are $15 – $35 per $100 borrowed within a 2 week period (the period in between pay dates) and are meant to be taken out only in real need when other alternatives are unavailable, such as borrowing from friends or using credit cards.  In addition, payday cash advances are intended to be held just in between pay periods and not throughout the year, hence its name, “payday” loans.

Payday loans are not new inventions. Big banks have increasingly extended similar types of products under names like checking advance services, with Wells Fargo offering such a product since 1994. The major difference is that payday loans, offered by independent financial institutions, are not backed by the federal reserve, offering a greater risk to the payday lender, seeking counterbalance by passing costs to the borrower.  In addition, with the above-average payment default rate in the payday industry, it becomes more clear why higher risk loans, such as payday loans, come at a raised price.

Payday Loans Debate

If a loan is paid in full upon the first due date, then the interest rate of this loan falls approximately between 15% – 35%. The problem occurs when the borrower is late on payments or makes a minimum payment that results in rolling over a balance to a next term because additional fees will be applied to the account which can become very costly, especially if this is made into a regular habit.

The choice to apply for and obtain a payday loan is up to the customer.  However, the duty to notify the customer of the loan’s terms and fees befalls on the lender. If the customer agrees to the lender’s upfront notice regarding rates, terms, and fees, then that results in a contract with no foul play, not different from the decision of paying the premium price tag for designer clothes or luxury automobile.   In that case, it would not be similar to a hidden overdraft protection fee or arbitrary credit card interest rate hikes.

The problem occurs when there are concealed terms and fees such as the ones resulting in the Overdraft Fee Legislation and Credit Act of 2009 that protected consumers from too-small-of-a-fine-print terms and unfair interest rate hikes. If a customer is made fully aware of their terms and fees obligations, a providing lender, whether it be a bank or a payday lender, should not be held liable for the customer’s inability to fulfill them.

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Is your bank handing out free money?

Posted by Sara M. Varese

Banks profit from having a person become their customer – in the long run.  That’s why some banks are offering cash and prize incentives to obtain a client, hopefully for life.   Once they get you in the door by offering some nice little perks, they hope to sell some other things too, like a money market account, overdraft fees, and more.  Some of them may of value to you and some you would better avoid. Check out this article for more information.

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