Despite all of the regulatory efforts to inhibit the use of overdrafts (ODP), more than 100 million American consumers (77 percent of more than 130 million checking accounts) have opted in for overdrafts (ODPs) on debit and ATM card transactions, according to Moebs $ervices. Since its peak at $37.1 Billion in 2009, ODP revenue has fallen for six straight quarters, ending at $30.1Billion for the first quarter of 2011.
Like the mythical bird the Phoenix, Moebs says, ODPs are becoming reborn. The economic research firm reported that ODP revenue at the end of the second quarter of 2011 is up over $700 million at both banks and credit unions. Additionally, the average number of overdrafts per household increased during the same period.
“From our study of usage, behavior, and prices of over 2,500 depositories and a million checking accounts, Americans not only want ODPs but are using overdrafts with increased frequency,” said Mike Moebs, CEO and economist of Moebs.
Some analysts and business owners are concerned that the CFPB is going to make access to credit more difficult, slowing the wheels of commerce considerably in the process. Crain’s New York Business reports that the newly minted Bureau is making small business owners in New York nervous that they, and their customers, will have limited access to credit, as the CFPB flexes its regulatory muscles.
The combination of the credit card act and the recession triggered card issuers to raise interest rates by about 2 percentage points, notes Nessa Feddis, VP and senior counsel at the American Bankers Association.
“If the bureau imposes further restrictions, the additional regulatory burden could [result in] higher interest rates and fees,” Feddis said. The agency does not have the power to cap either.
Today in Bloomington, IL, CRL will be hosting a grassroots rally that they say will encourage local lawmakers to place a 36 percent rate cap on payday loans, effectively placing a restriction on access to short-term credit for consumers.
We just wanted to remind our critics that recent evidence demonstrates that certain types of restrictions on payday advances, including annual loan limits and cost-prohibitive rate caps, drives consumers to financially risky and more expensive products.
Since 2009, 19 of the 32 states where payday lenders operate have rejected prohibitive rate caps. These states, which provide an important short-term credit option to consumers, have rejected prohibitive rate caps that would force regulated payday advance stores out of business. On a federal level, Congress has also rejected rate caps on several occasions. Most recently during the debate on the Dodd-FrankWall Street Reform and Consumer Protection Act, Congress expressly prohibited federal regulators from establishing a national rate cap on payday advance fees.
Research shows that heavy-handed restrictions on payday loans have caused consumers to bounce more checks, pay more late fees, and experience more credit problems.
Have you taken out a payday loan? Email us! TODAY is looking for people to interview for a future segment on payday loans. If you are interested in being interviewed, please tell us about your loan experience and include your contact information.
If you have a story about your experience in getting a payday loan you want to share, share your story! You can go to the form, fill it out, and be honest about what you experienced with your payday loan.
Jamie Fulmer, spokesman for Advance America (a CFSA Member), had a letter to the editor published in the Jackson Clarion-Ledger yesterday, where he discusses the importance of short-term lending. As a response to a recently published article, Fulmer had this to say:
Your article described short-term loan customers as those “without access to other credit.” But when facing such a shortfall, consumers say they consider the pros and cons of credit cards, overdraft programs, and cash advances from banks, credit unions, and retail lenders.
They also weigh the costs and consequences associated with missing bill payments or submitting them late.
Consumers thrive in a competitive, regulated financial services environment. The Mississippi Legislature approved meaningful reforms last year, preserving access to a variety of regulated options and implementing consumer safeguards. That was step in the right direction. But we must continue to ensure that consumers are equipped with all of the information they need to compare services and make informed choices.
So what’s wrong with too much regulation? Uncertainty in the markets that will eventually trickle down to consumers, according to Warren Stephens. The CEO of Stephens Inc. was interviewed yesterday (you can watch it by viewing the video below) by FOX Business News regarding the impact of regs and rules out of Dodd-Frank and how they could impact access to credit. If you missed the Wall Street Journal story featuring Stephens, click here.
Raj Date says the CFPB is considering whether to impose rules on bank overdraft programs to ensure they’re being applied “in an even-handed way, according to Bloomberg. Date went on to say that U.S. regulators, including the Federal Reserve, have imposed rules on overdraft programs, and that may lead to inconsistent supervision of different kinds of financial institutions.
“We will be monitoring the impact of the recent regulatory and supervisory interventions,” he said during a Philadelphia speech today. “If we find that these interventions are not working as intended, we will adjust. And if we find that additional action is needed, we will act.”
And again we ask, how is this different from what CFSA says? We have always promoted responsible use of the payday advance product, and even go as far to say in the Your Guide brochure handed out at our Member Company stores (both in English and Spanish): “Never use payday advances as a long-term solution for financial challenges.” Continued from the Las Vegas Review Journal story just posted:
“This is an expensive form of credit that is designed to be a short-term loan,” Messick said. “We don’t want them to use this to try and solve their long-term financial situation.”
Comes from a spokesperson from a CFSA Member Company, when commenting on banks entering into the payday loan arena, featured in this Las Vegas Review Journal article.
“There is a growing need for access to short-term credit,” said Jaime Fulmer, an Advance America spokesman. “Credit unions and banks offering short-term loans is a reflection of consumer demand.”
Truth is, though, that they’ve been offering direct deposit advances for quite some time (and Wells Fargo isn’t the only one).
“We have been offering these loans for a while,” said Richele Messick, a Wells Fargo spokeswoman. “To be eligible, you have to be an established Wells Fargo checking customer with recurring direct deposit or a tax refund.”
Swanson said that people in need of a loan would be “better off trying to find a bricks-and-mortar financial institution in Minnesota” that’s licensed. Consumers may be able to get a small line of credit with a local bank or credit union.
“The worst then they can do is to do business with these unlicensed” firms, she said.
