Big banks are dropping their payday-like loans
Big banks are doing away with 'deposit advance loans,' which many have compared to payday loans.
This post comes from Nancy Dunham at partner site Money Talks News.
If you cringe every time you see someone take a short-term bank loan with drain-you-dry interest rates, relief is in sight.
The Wall Street Journal reports that Wells Fargo, U.S. Bancorp and Fifth Third Bancorp will phase out "deposit advance loans," which consumer advocates have long contended drive debtors into deeper debt due to interest rates that may top 300 percent. The banks' announcements came days after federal regulators said they would investigate whether the loans violate consumer protection laws.
Banks have defended the loans as needed financial lifelines for customers offered at lower interest rates than the payday loans that are often advertised by banners in storefront windows.
Last year we showed you Credit.com's list of payday loan laws by state. At first glance, the interest rates seemed in line with those of credit cards: 17.5 percent in Alabama; 20 percent of the first $300, then 7.5 percent for the remainder in Colorado; and 16.75 percent in Louisiana.
The problem, of course, is that credit cards quote the amount debtors pay over a year. Payday lenders collect their interest in as little as a week, as do banks that offer deposit advance loans.
"Advocacy groups say deposit advance loans carry the same triple-digit interest rates and balloon payments as the payday loans offered by storefront and online operators," reports The Washington Post.
The advocacy groups' concerns are credited in part with federal regulators' November warning to banks that they needed to assess customers’ ability to repay such loans, says the Post. The regulators also issued guidelines about such loans to the banks.
But it was an announcement by Comptroller of the Currency Thomas Curry, which encouraged "the banks we supervise to develop new and innovative programs to meet the small-dollar credit needs of their customers in ways that do not carry the risk of creating a cycle of high-cost debt," that many believe resulted in the banks' moves to discontinue or limit such loans, multiple sources report.
Don't be surprised if you hear more about these loans in the near future. Although consumer advocates hail the move, those in the banking industry said it will drive financially strapped consumers toward unsavory lenders.
More on Money Talks News:
"Although consumer advocates hail the move, those in the banking industry said it will drive financially strapped consumers toward unsavory lenders."
As if some of the tactics used by big banks aren't unsavory?
Reality... by 1905, 4 out of every 5 families in American cities with populations of 25,000 or more had become over-indebted to Loan Sharks (1905 was the year that label was coined). Eastern banks lent grubber jewelers, pawn shops, bookkeepers and hustlers seed money to make bad loans to people working mainly in the growth-stage industries. Banks arranged "pinching" with industrialists who used insider-knowledge to short-sheet the worker's ability to repay those debts but not be wiped completely out. The circumstance was true- indenture sculpted by bankers like Morgan & Mellon. As America's economy eventually compromised, the Loan Sharks filed for bankruptcy first-- unable to collect from destroyed destitute families and unable to pay on their own bank loans. Morgan was the FIRST to beg the government for bailing and got it. He used those funds to craft a secret society of financiers with broader powers and, using his DC connections... bribed a small handful to remain seated at false dismissal of Congress on December 23, 1913... whereas a vote came in a near-empty chamber, passing the Federal Reserve Act.
Sorry folks... I'll take COMPLETE closure of banks and the Federal Reserve. Better to eliminate collusion and corruption in favor of free enterprise and simply elect competence & commonsense into Congress and require them to enact SIMPLE law that prohibits abuse, clarifies terms and the inability to get Too Big. Competition prevents submission and suppression. Destroy BIG.
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