In an attempt to bring back the clients that have shifted to online lenders, banks push their short-term loans as better alternatives. But with the more intense marketing of bank-provided short term loans, regulators are keen to know if these offers have the same level of risks as those found online.
FDIC explains that banks are looking at short term loans as possible ways out of financial distress. They are seeking to generate revenue that would be equal, if not more than, the money that they have lost when they enforced stricter regulations in the enrollment to overdraft programs; and the 2010 Federal Reserve rule of limiting the fees for debit-card swipes also affected bank revenue greatly. Hence, the higher interest rates.
Banks like the Wells Fargo & Co. are offering these loan options but with higher interest rates than their other loan offers. These high-cost loans are said to be meant for those who cannot access any other form of credit because of the lack of requirements and/or having no credit history or a bad credit score.
But since the interest rates on these bad credit loans are higher than usual, there comes a question of whether or not they violate the interest cap mandated by individual states. Surprisingly, that simple question has launched in intensive investigation initiated by the Federal Deposit Insurance Corporation last May of this year.
According to the FDIC, banks are lending money at exceedingly high interest rates and they want the full amount plus interest paid back by the next payday. The inquiry was made a lot more important by the lawsuits filed in North Carolina of individuals claiming that banks did not reveal the true costs of their short term bad credit loans.
Based on the lawsuits, the banks involved never used “payday loans” so clients are not aware at once that they are entering into an agreement that loaned amount has to be paid back by the next payday. The FDIC further explains that this lack of proper information dissemination makes it clear that these banks are preying on low-income borrowers who are desperate to have their financial needs immediately met.
But as for the other banks, they say that they can compete with the popularity of online lenders by offering these loans in a way that are not indefinitely renewable. Also, the banks promise to create a credit record, which would help borrowers with outstanding payment records to graduate into more long-term and lower-interest products later on.
Both terms, according to the association of bankers, directly answer to the loopholes in the online lending industry.
Online Lenders Fight By Giving Free Educational Webinars
In response of the threat posed by traditional banks, online lenders have opted to provide their current and potential customers with free educational webinars. These webinars aim to inform customers of the newest and most comprehensive information regarding personal lending. Hopefully, these updates will keep every customer aware of what’s happening to the industry.
A lender offering online bad credit loans says that there are instances when short term loans are the best solutions to urgent money needs. However, it is imperative that customers be empowered for them to choose the right choices.
Up to the present, the best advantages to getting bad credit loans from nontraditional lenders would be the flexibility of terms and the ease of application. No credit check is still required as long as the requirement for stable employment is met. No intense background investigation is needed as long as you are above 18 years old and a US citizen. The rest of the personal and financial information remains to be seen via the webform that has been electronically submitted.