Big banks and credit unions are now the major players in the U.S. payday lending industry, charging an interest rate and fee that are even higher than those charged by regular online lenders of bad credit loans or payday loans. This is according to a report by the Minnesotans for a Fair Economy. While big banks have been known to finance some of today’s largest lenders of online bad credit loans, reports say that some of these financial institutions have also started to offer loan programs that pretty much resemble those offered by online lenders, but with higher fees and rates.
Greg McBride, Bankrate.com’s senior financial analyst, says that “[a]t a time when banks are struggling for growth, it’s certainly an avenue they’re going to look at.” On the other hand, Steve Weakley, president of Vons Employees Federal Credit Union based in El Monte California, believes that “[e]ven though it’s a higher interest rate than we would normally charge, this is actually less-expensive alternative.”
The country’s big banks, including Wells Fargo and U.S. Bank, however, denied all these claims about their institutions offering payday loans, saying that their services have features that are very much different from the regular payday loans. For one, theirs are called checking account advances or direct deposit advances. Another is that they don’t allow rollovers.
Weakley, meanwhile, reveals that the credit union he leads give credit customers at least a month to half a year to pay back the loan, unlike regular payday loan programs that require borrowers to pay back in two weeks time. The credit union also adds that the longer payment term that they implement prevents rollovers, which are very common in regular payday loans.
Critics, however, believe that they are the same thing. For instance, Kathleen Day, the Center for Responsible Lending spokesperson say, “It walks and talks just like a payday loan.”
As more banks and financial institutions consider offering payday loans to consumers, authorities have also started to look into this growing trend. The director of Consumer Financial Protection Bureau says that the bureau would look into and closely investigate banks and credit unions offering payday loans. Meanwhile, Federal Deposit Insurance Corporation Chairman Martin Gruenberg says that his group also plans on investigating these financial institutions.
The industry of payday lending, or bad credit loans as some would call it, is experiencing an unprecedented growth. With fast and hassle-free transactions, and even those with bad credit history being eligible for the loan, bad credit loan programs can certainly help those who are in need of emergency cash. For some credit consumers, payday loans are the least expensive way to get fast cash.
Still, many critics are concerned about banks and credit unions engaging in bad credit loans, and call for authorities to look deeper into the business practices done by these institutions, not just by banks and credit unions but even loans offered by online lenders.
Rules and regulations have been implemented, both in the national and state level, to ensure consumers are protected from this relatively unsafe product, as critics presumed payday loans to be.