Robbery at ball-point

Banks and other traditional financial institutions are regulated in such a way so as not to charge usurious fees and strap customers with predatory loan terms. Banks are in business to make money, and sometimes this happens at the expense of the consumer (which then eventually threatens the whole system). So there are regulations in place.

Okay.

Payday lenders, on the other hand, aren’t so mainstream. They’re fringe banks and so they aren’t regulated in the same way. By the same logic, a bank isn’t a payday lender, and they don’t have anything to do with payday loans.

Okay.

Banks do something extra, however.

What banks do, however, is just offer small little loans to their customers. They aren’t officially payday loans (because they’re not payday lenders), but loans that will be automatically repaid from the consumer’s bank account. No big deal. Examples of these kinds of accounts include Ready Advance by Regions Bank and Direct Deposit Advance by Wells Fargo.   To do this, they also just charging their customer a “little” bit extra for this service. Enough so that one such loan carries an APR of up to 400%. There is no other kind of of small dollar loan option for consumers with reasonable interest terms.

Well, actually, that APR is similar to what some payday lenders charge… Then how again are these banks different from payday lenders? Oh, that’s right. Regulation.

Other banks (Ex.:  J.P. Morgan Chase, Bank of America and Wells Fargo) just bankroll online predatory-oops! I mean, payday lenders. Some of these loans are even given in states that prohibit payday lending. But they’re not engaging in payday lending or anything nefarious and they’re certainly not skirting the regulations intended for them, they’re just investing in a business. <wink>

C’mon. Does anybody really buy this unattractive piece of merchandise? No. Then how come this outrageous exploitation of consumers continues unhindered?

Of all the things in the poverty ‘verse that make my blood boil, this tops the list.  Clearly, the problem is as much banks as it is payday lenders, and as much about financial options available to people with different resources as it is to financial education and personal decision-making.

I would love to get your thoughts on this, and I’ll be writing about it again.

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