Payday lending traditionally happens in seedy storefronts, often in low-income neighborhoods and around military bases. Not any more! Eager to get in on the next big subprime lending bubble before it bursts, big banks are brushing up on their loan shark chops and opening payday lending divisions.
So what’s the problem, here? Well, payday loans from banks typically carry annual interest rates as high as 365%. That means if you took out a $10 loan, it would cost $46.50 to pay it back. It doesn’t feel so bad because payday loans are supposed to be short-terms loans, but the typical payday loan customer uses payday loans often enough that he or she is actually paying that kind of interest.
Banks are especially interested because they tend to hold the payday loan customer’s deposits, as well. Payday loan customers wind up paying more in overdraft fees, and are more likely to lose their bank accounts. In short, it’s bad news for consumers.
The Center for Responsible Lending is watching this trend, and has more information about big bank payday lending.
{ 1 comment… read it below or add one }
It seems that some of the big banks have not learned from their past mistakes with redlining and doing some of the financial shenanigans that caused the great recession. Predatory lending is as illegal as extortion it’s like borrowing money from the mob with rates as high as 365%. It might take a little while longer before people catch on but they are more aware of some of the practices banks are doing and with social media word will spread quickly.