Hidden Consumer Loans: An Analysis of Implicit Interest Rates on Bounced Checks by Mark A. Fusaro, Department of Economics, East Carolina University, finds that the median interest rate on bounce protection loans is in excess of twenty times that of payday loans.
Fusaro writes, “Payday lending attracts attention for its high interest rates, but bounce protection loans are much more expensive. When the amount borrowed is low and the time outstanding is short, the effective interest rate paid on this loan can be quite high.”
Additional findings include:
- People of all income levels overdraft equally often
- Customers using bounced checks as personal loans account for twenty percent of overdrafts
- Service charges are a profitable income source for banks
- When a bank pays overdrafts, customers overdraft 50% more
I have a strong suspicion that they can only calculate the checking accounts that have “Over Draft Protection” and are in fact covered/paid by the bank. Those are, in the majority of circumstances accounts that have Direct Deposit. There is another inportant fact to consider and that is the other percentage of drafta that the banks reject and returns. these individuals are hit with the fee’s x2, the first deposit they make the bank will immediatly get an NSF fee and then the institution that they wrote the check to will want one on their end as well. Do the math on one of those and lets see the Annual Percetage rate