USA Today discusses a new FDIC report:

More than one in four American households, including more than half of black households, use check cashers, payday lenders or pawnbrokers rather than a bank, according to a Federal Deposit Insurance Corporation report to be released today.

Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The survey, the FDIC’s first in-depth study of the issue, was conducted by the Census Bureau.

The problem is most acute among minorities: 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks.

Buying money orders and cashing checks are the most frequent transactions, the survey shows. Those using check cashers and other services say they are faster, cheaper and more convenient than banks — even though they pay a fee to cash a check they could deposit in a bank account for free.

The FDIC wants banks to win back those customers, saying consumers should have the benefit of insured savings and be able to build a credit history.

The Payday Pundit thinks everyone should be banked as well.  But tell that to the banks.

CFSA’s D. Lynn DeVault has a strong letter in USA Today’s online edition today:

USA TODAY’s article “Anger at overdraft fees gets hotter, bigger and louder” rightly points out that payday loans are often less costly than so-called overdraft protection.

Payday loans offer additional benefits over bank overdraft fees because the cost of the loan is transparent and easy to understand, and all of our customers choose to take out the loan, rather than being automatically enrolled. Payday loans typically cost $15-$17 per $100 borrowed, due on the borrower’s next payday. Member companies of the Community Financial Services Association of America post these fees in large print and ensure that customers understand the cost before making the loan.

In his research, Gregory Elliehausen of George Washington University called payday loans “a simple product.” He found that “nearly all payday advance customers are aware of the finance charges for their most recent new payday advance.” In contrast, many do not know that they are enrolled in overdraft protection or when a transaction triggers a fee.

Payday loan customers can use overdraft protection for short term credit instead of a payday loan, but they choose payday loans. Elliehausen found that “nearly half (of payday loan customers) considered other sources of credit before obtaining a payday loan.”

Payday loans’ transparent, easy to understand, opt-in fee structure is one of the reasons that customers consistently choose payday loans and report satisfaction with the product.

USA Today story today points out that payday loans can be a cheaper alternative:

G. Michael Flores, founder of Bretton Woods consulting firm, says younger consumers with low to moderate income are the ones using both payday loans and bank overdraft coverage.

“We’ve been saying it for a long time, that (with) virtually any comparison of the cost of what we do and the cost of a (bank automatic overdraft), the payday product is much cheaper,” says Billy Webster, board chair of Advance America.

d.

From today’s USA Today:

Long after the economy recovers, millions of Americans will be left with a grim legacy of the recession: damaged credit scores, the three-digit ratings that help determine consumers’ ability to get loans and other types of credit.

Even though some consumers have seen their credit scores improve as they trim their debt, others have seen their scores drop significantly because of late payments on bills, foreclosures and rising credit card debt.

Meanwhile, lenders’ actions during the recession are delivering another blow to borrowers — even some with pristine credit. Lenders are closing credit card accounts and lowering credit limits for millions of consumers and business owners who have never paid late. Some lenders are reporting mortgage modifications in a way that dings consumers’ scores, dealing a setback to those trying to get their finances on track.

Another story in today’s paper goes after government credit union overdraft fees.  From the story:

Government credit unions aren’t run by the government but are legally owned by their members, including some of the administration officials and members of Congress pushing for overdraft reform. Credit unions say they automatically extend overdraft loans because members want the service. And they point out that as not-for-profit institutions, they want to meet their customers’ needs.

At the United States Senate Federal Credit Union, which counts senators and other government employees among its members, courtesy overdraft is provided because, “If we didn’t, (consumers) would go somewhere else and get it,” says CEO Susan Enis.

Not everyone wants to be signed up, however. Sen. Chris Dodd, D-Conn., chairman of the powerful Senate Banking Committee, is a customer of the Senate credit union. He’s also been an outspoken critic of overdraft practices, vowing to crack down if regulators keep letting institutions automatically sign consumers up.

“All banks and credit unions should be required to get customers’ OK before they sign them up for overdraft services,” Dodd says.

USA Today has another story today credit union short-term loans:

 •The loan cost. Some credit unions claim that they charge 0% interest on their short-term loans. However, application and other fees can push the effective APR into the triple digits, according to the NCLC, which has recommended capping the annual interest rate for payday loan alternatives at 36%, including fees.

USA Today picks up an an issue we’ve been discussing:

  In recent years, hundreds of credit unions have introduced short-term loans for members who face a temporary cash crunch. But some of the loans “are only marginally cheaper than traditional payday loans,” says Lauren Saunders, an attorney with the National Consumer Law Center.

The National Credit Union Administration, which regulates federal credit unions, last week issued guidance to its members, alerting them to the “risks, compliance issues and responsibilities” associated with a short-term loan program.

Perhaps they can’t make them cheaper without losing money.

And USA Today, as usual, looks into it:

 But what began as a customer service has often become an important revenue driver for banks at the expense of the most vulnerable consumers, according to bank memos reviewed by USA TODAY and interviews with industry insiders.

And as usual, USA Today is all over it:

But even as outrage was building over credit cards, banks seized upon another way to squeeze profits out of struggling consumers: higher checking account fees. These fees can add up to hundreds of dollars before consumers know there’s a problem.

CHART: How credit card, bank account policies compare

As the economy struggles to climb out of a recession, banks are extending some of their most profitable — and controversial — credit card practices to checking accounts.

For example, banks are making it easier and more punitive for consumers to spend more than they have in their checking accounts, just as they allow consumers to spend past their card limits and charge them a steep fee for doing so. Some analysts believe that new credit card restrictions will only accelerate fee increases on bank accounts.

The key is transparency and disclosure.   There are plenty of banks for consumers to choose among.

From USA Today (a paper that is covering the credit crisis better than any in the country):

From the third quarter of 2008 to the first quarter of 2009 — the latest data available — the average TransUnion credit score dropped 6 points to 651, the credit bureau says. Scores fell more dramatically in states hardest hit by the housing bust: California saw a 10-point drop, for example, and Arizona, 11.

“Consumers are feeling the bite of the current recession,” says Ezra Becker, a director in TransUnion’s financial services group. “With delinquencies showing up in credit files, it’s not surprising that the average score is decreasing somewhat.”

So what are the implications for the payday lending industry?  Will more consumers be turning to payday loans or will defaults increase, or both?