Overdraft Protection and Payday Advance Loans
Short-term credit providers play a critical role in the U.S. financial services market by extending capital to a population in need of small-dollar loans. The demand to meet the need for immediate, unsecured, short-term credit has grown in the past decade with the market now exceeding $115 billion, including bounced check fees, late bill payment fees and payday loans. Bank overdraft protection and salary or payday advances are among a number of options available to consumers facing unexpected and unbudgeted expenses.
Confronting a budget shortfall, a consumer may overdraw their checking account, triggering a “bounced loan” through overdraft protection or choose an advance through a payday lender.While both options provide consumers with short-term access to funds, there are important differences between the two.
See a detailed comparison of the two products.
Have you read the new paper by Melzer and Morgan (the FDIC guy), “Competition and Adverse Selection in Consumer Credit Markets: Payday Loans vs. Overdraft Credit”?
It shows that where payday loan credit is available, banks charge more in NSF fees, more for overdraft protection, and are less likely to offer free checking.
The conclusion: you guys make the problem worse, not better.
So competition drives prices up? That’s the first time I’ve ever heard anyone anywhere argue this.