Banks getting into PDL
February 23, 2010 | alternatives, federal legislation, industry, positive media coverage | Comments (1)A Bloomberg story picked up by Businessweek discuss how banks need to make up for lost overdraft revenue by getting into payday lending:
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
Banks including Cincinnati-based Fifth Third Bancorp, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks.
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“at annual rates of 120 percent if repaid in 30 days”
That’s a big “IF”. You have to be on direct deposit to get it and they take their money first when your deposit hits. If you borrow the money on Wednesday and get your pay direct deposited on Friday and they take their money what does that do to the APR? 1,825%?
Some of these banks have already been doing this for at least year or two.