More small banks to offer payday loans
Payday loans are one of the most controversial financial products available, despite being much a smaller business than credit cards. However, a growing number of large and small banks are offering payday loans.
Small bank payday loans equally court controversy
Payday loans are one of the most controversial forms of credit, as the loans are said to be mostly targeted to and borrowed by the working poor. High interest rates are also a frequent target, as a payday loan can technically carry interest of several hundred percent when expressed as annualized interest. However, the loans are usually have a term of only a few weeks and have relatively low simple interest.
Ordinarily the province of store front and online lenders, banks have started getting into the game. A few large retail banks, such as US Bank and Wells Fargo offer “checking advances,” cash advances against future deposits, but a growing number of small banks and credit unions are offering payday loan-type products.
According to the Los Angeles Times, 400 small banks were offering them as of this year. More are going to start, according to the Huffington Post.
Like ducks to water
RateWatch, an analysis firm specializing in the financial services industry, recently conducted a survey of 259 small banking institutions, finding that 37 percent already offered payday loans or a similar product, often called a deposit advance or something to that effect. Of those that didn’t 20 percent intended on offering them in the next year.
Part of the rise of bank payday lending is changing legislation, according to the Los Angeles Times, as a 2010 law raised the interest rate small banks can charge on loans from 18 percent to 28 percent. Customers are taking advantage, too; according to the Huffington Post, one of the member banks in RateWatch’s survey reported 5,000 of its 210,000 members had borrowed from it’s small-dollar loan program, called “Stretch Pay.”
Under federal gaze
Earlier this year, according to Fox Business, director Richard Cordray of the Consumer Financial Protection Bureau announced that the CFPB was going to be watching bank deposit advances closely as the agency wants to monitor how the loans are marketed to customers.
Though bank-offered payday loans function almost the same way as payday loans and garner the same criticisms, there are some advantages opting for one from a bank rather than a payday lender. According to the Los Angeles Times, repayment periods are often longer, as the typical payday loan carries a term of two weeks. Some banks offer up to 10 months to pay back a deposit advance.
Interest rates are often lower as well. Wells Fargo, for instance, charges $7.50 per $100 borrowed and Regions Bank charges $10 per $100 borrowed, according to the Huffington Post, less than the $17.50 per $100 average from most payday lenders.