Banks jump into payday loans with lower rates
Monday, December 10, 2007
WASHINGTON -- After years of watching check-cashing stores and payday lenders steal potential customers, banks and credit unions are beginning to offer the same services and products but in more affordable and responsible ways.
The movement comes as federal bank regulators focus on the estimated 73 million Americans who are underserved by the nation's banking industry.
The hope is that mainstream financial institutions can convert the check-cashing customers and payday loan-seekers of today into the depositors and low-risk borrowers of tomorrow.
"A large number of banks and financial industry players are going after this market because they do think this is a growth opportunity. They can make money on these consumers, and they can do it in ways that are mutually beneficial for them and the customer," said Kimberly Gartner, associate director of the Chicago-based Center for Financial Services Innovation.
The dynamic growth of the alternative finance industry, which includes car title lenders, illustrates the dire need among many Americans for convenient small loans and quick check cashing without bank delays.
About $10 billion in fees are collected each year on these services from 47 million households, or roughly 81 million people, said H. Leon Majors III, president of ESP Payments Research Group in Salisbury, Md.
Although the alternative finance industry provides a valuable service, it's drawn the ire of consumer advocates and lawmakers because of its high fees and sometimes predatory nature. Those who cash checks, pay bills and borrow money through these channels often have bank accounts but typically pay the higher costs for fast access to cash.
Next year, the Federal Deposit Insurance Corp. will launch a two-year study in which nearly 40 banks will offer small-dollar loans of as much as $1,000 as an alternative to payday loans.
Source : http://www.oregonlive.com/
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