Under-banked Americans don’t want charity and they certainly don’t want moral superiority; they just want financial products that meet their needs for convenience, speed, and transparency of pricing. And they are smart enough to determine the best financial option for their unique situation.
Let’s focus our efforts on expanding the financial options for under-banked consumers. This will likely involve innovative new products and new applications of technology and will need to be supported by a progressive regulatory environment.
The last thing Americans need in these difficult economic times is to be given “The Boot” as their only financial option.
Great op-ed from Ken Rees, the CEO of Think Finance, the came out today. Instead of giving customers “The Boot” (the one you might wear and use to panhandle to get money from passerbys), Rees says policy elites should change their “callous view of the real-world needs” and recognize that the underbanked need short-term credit as a viable option.
Most opponents of short-term credit products like payday loans believe that eliminating options for consumers is the right thing to do because they legitimately believe consumers can’t be trusted to make their own financial decisions. That is a dangerous and patronizing point of view.
The truth is that all surveys of under-banked consumers who use products like payday loans show that they are educated, hard working Americans who fully understand their options.
The average payday loan customer has at least some college education, is meaningfully employed, and makes between $35,000 and $50,000 a year. They understand the bottom-line costs (both economic and psychic) of their options and can be counted on to make the best possible decision for them from the options that are available.
Many stories have flooded the marketplace pointing out one of the many options consumers have for a quick emergency loan. According to Fox Business News, iIncreasingly, banks are offering what they call direct-deposit loans, giving customers access to short-term advances.
Banks that offer these types of loans say their products are different from payday loans because they have lower interest rates than traditional payday loans, and loans are made only to existing customers. In most cases, customers can only borrow up to a maximum of $500, but some banks, including Wells Fargo, limit the loan to half of the direct deposit or $500.
But are they really that different?
“Depending on how long the loan is outstanding, the interest rate can be 300% to 400%,” says Lauren K. Saunders, managing attorney at the National Consumer Law Center. As soon as a direct deposit comes into the account, “which could be three days later,” the bank takes the money plus interest, she says.
Significant restructuring appears to be underway in the personal finance market as major banks look to avoid what’s estimated to be a $9.4 billion revenue loss as a result of the Federal Reserve’s cap on debit card interchange fees that takes effect on October 1, FOX Business News is reporting.
In light of these simultaneous debit card rewards decreases and fee increases, the question that’s being asked: Should consumers be looking for checking account alternatives? This article encourages consumers to consider prepaid card accounts. Why? Because they are not subject to interchange fee caps and can basically serve the same purpose as a checking account.
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.
A word to the wise to all consumers of payday loans: Use a CFSA Member! We want to make sure that situations like this don’t happen. Remember, using a CFSA Member means you’re doing business with a legitimate financial institution.
A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.
A member will comply with all applicable laws. A member will not charge a fee or rate for a payday advance that is not authorized by state or federal law.
You’ll know when you’re taking out a loan with a CFSA member if you see this seal.
The Consumer Bankers Association’s President Richard Hunt talks to Fox about on why there is no nominee to head the Consumer Financial Protection Bureau.
Nancy Skinner joins Judge Napolitano on Fox’s Freedom Watch in New York on June 9, 2011. The panels discusses whether Elizabeth Warren should be named CFPB head in a recess appointment because the GOP have said they will block any appointment to head this new board.
