How your leaders fail you. Payday lenders less dangerous than big banking.
The financial crisis we’re in started when we deregulated banking. Banks got bigger, greedier, more powerful. My little local bank never would spend money on a lobbyist, but Bank of America, would spend lavishly.
In Ohio, our legislators went after “Payday lenders” and their 500% interest rates which was a good thing, but, now- they are chasing after the loopholes:
At Check Into Cash, customers taking out a two week, $300 loan repay $318.62 — $15 for an origination fee and $3.62 in interest. Loans are not dispersed in cash, so Check Into Cash charges 3 percent — $9 on $300 — if borrowers wish to cash the check at the store.
What’s amazing is that if you overdraw your checking by a dollar, miss a payment window by a few hours with a “bank” can charge you $39 and get away with it- over, and over again. It’s how they pay their lobbyists and push you closer to foreclosure, bankruptcy, failure.
If you do the math, and it’s pretty simple, even with the “origination fee, interest and the 3% fee for cashing the check, you are still ahead of the big banks.
When Commissioner Dean Lovelace worked to pass anti-predatory lending practices in Dayton, very quickly the banks went into action, paying their lobbyists to override local laws with State ones. The predatory lending legislation at the State level was toothless and worthless, but the politicians who wrote it all got paid.
It’s time to ask your State reps about why banks haven’t been challenged with their exorbitant fees, and leave the payday lenders alone for a while.
While I definitely agree that overdraft fees that are incurred in the way that you mentioned are, well, stupid, and I’d love to see them banished, I think that the predation of payday lenders is much more pronounced.
Banks at least have a real reason to put those safeguards in place – and that’s what they are: safeguards against certain behaviors.
Payday lending takes advantage of people from the start. It’s inherent in their existence, and it’s a system that consistently takes rips off people who have so little to begin with. It’s pretty outrageous.
I’ve had my share of ‘so-my-check-deposited-at-09:32-and-my-automatic-bill-pay-went-out-at-9:14-so-here’s-my-$60-in-fees’ moments, and they’re infuriating, but I think the difference is how the fees are collected: payday lenders take advantage of people who really don’t have any other options. They charge outrageous interest and fees right out of the gate. Banks overdraft fees are just that – fees for taking money out of our accounts that we don’t have, a blanket protection for the banks for activity that they don’t allow. It’s not overly oppressive. It’s frustrating, but it’s a specific consequence put in place for a specific action that, for most of us, most of the time, is avoidable.
I’d rather see individual banks implement a system to avoid those near-miss (seriously, 5 minutes? 5 minutes and I would’ve avoided $60 worth of fees?!) fee charges, etc., than have the city put their time and effort into it – maybe they can use that time to work on a way to make the need for predatory payday lenders obsolete..
What about how banks process the largest checks first against people’s accounts ? What I mean is, you have $100 in checking and write $120 in checks (not condoning this either), $80, $20, $10, and $10. They will process the $80 and $20 checks first and then nail you for (2) overdraft fees on the two $10 checks vs processing the $20 and two $10 first and only getting (1) overdraft fee.
http://en.wikipedia.org/wiki/Overdraft#Transaction_processing_order
Banks make billions (yes billions) of dollars in profits every year off of overdraft fees. Our little hometown credit union used to give us a $5 grace. No more, a few months ago, I was overdrawn by eleven cents. Eleven cents! (Had forgotten to record the Credit and Disability Life payment of less than two bucks) — and I was dinged $34. It ought to be illegal. The banks have the cojones to say that these fees are in place NOT as a deterrent but to make as much money as possible off of their clients. This has been particularly odious in how they approve debit card transactions when the money isn’t there, so that they can charge you outrageous fees. The mafia has more reasonable rates. What the banks are doing is usury, plain and simple.
To David,
The deregulation of banks are not the source of our woes. To base an argument on an unfounded claim kinda invalidates the entire article.
To Brooke:
These are private companies offering money at a price. No one is forced to use their services. The alternative to their services, is not having any services. Which is better?
To Hall:
Bank of America settled a class action lawsuit for this very thing and they no longer process in the manner in which you described.
To Miss Larkin Vonalt:
I have a feeling you would like to make alot of things illegal. But, there is a simple form that you can fill out with a debit card that says “deny any transactions that would result in overdraft”. As far as getting charged for an overdraft, shop for better banks but dont make it illegal. WaMu had the one free fee reimbursement plan, but they died.
Also, keep in mind that merchants used to charge you $20-30 for dealing with a bounced check. Banks that now process them allow you to avoid dealing with the merchant and you have to deal with the bank instead. It helps the merchants I am sure and it transitioned profits to the bank.
If there are going to be laws they should be about clarity to prevent fraud and claims of fraud. But anyone should be allowed to decide that $100.00 today is worth more than $150.00 next week .
Payday lending and check cashing services have replaced pawn shops as a form of fringe banking.
@ Robert Vigh – I really encourage you to read a book called “And Then the Roof Caved In” by David Faber from CNBC. Or at least go to the CNBC website and search for the series “House of Cards”. The book is based on the series, which is an indepth study of the financial collapse. I never thought a financial book would be a page turner, but this one is. So yes, Virginia, deregulation of financial institutions is indeed a HUGE part of the meltdown.
Many payday lenders are owned by the banks – especially Wells Fargo. They went through and bought up all the small ones but kept most of the names.
I’m not a fan of big government, but I also realize that left to their own devices, corporations will not do what is best for the consumer. Public companies especially cannot serve two masters – so the shareholders win out over the consumers. We need the right balance of regulation.
TG,
The house of cards is created by government involvement. It is exacerbated by a federal reserve system that allows fractional reserve banking. The only need for regulation is to balance the imbalances of previous government involvement. We also had a freddie and fannie backed system. You cannot back a capitalist system with socialist banks and expect good results. I will see if I can find some cliff notes on the book, but so many of them leave out giant key points they are not worth the time to read.
Again, without government, corporations live and die by their service to the consumer. Regulation often creates barriers to market and empowers existing corporations.
Changes are coming, at least to Chase and Bank of America customers:
<http://www.nytimes.com/2009/09/23/your-money/credit-and-debit-cards/23credit.html>