AirTalk | More and more payday loans are offered by banks and credit unions

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Payday lenders have a bad reputation. Critics label them predators, usurers, and accuse them of embezzling thousands of dollars from desperate people in dire straits. But whether or not these loan products are predatory is a matter of debate, and the fact is that many people use them.

Payday loans, or high-interest short-term loans, have increased over the past two years as many struggle to pay their bills and put food on the table in a bad economy. Payday lenders say they provide a much-needed service to bridge the gap between paychecks or unemployment checks. And more and more banks and credit unions are agreeing with them, especially now that the interest rate on these loans has dropped from 18% to 28%.

Two of the major banking institutions here in California, US Bank and Wells Fargo, offer what they call “direct deposit advances” or “checking account advances.” The bank offers a loan of a few hundred dollars with a charge for every hundred. The loan is tied to your account, so after the time limit for the loan, the bank can withdraw the funds owed to it. More and more often, credit unions are offering a similar service.

In the past year alone, the number of credit unions offering a short-term loan product has jumped nearly 60%. They say there is a clear need for quick cash, and if customers can get it from their own financial institution, they are less likely to be caught in the vicious spiral of default that can occur. in shopping centers. Consumer advocates are far from convinced.

The Center for Responsible Lending recently sent a letter to federal regulators urging them to end short-term loans from banks and credit unions, as these types of loans increase the likelihood that consumers will remain in bad financial aid. They also say that the stigma that many people feel towards mall lenders does not exist when the loan is from your own financial institution, and more people will find themselves in trouble.

Is that the case? Are short term loans always bad for the customer’s bottom line? Or are they a necessary commodity that more and more people need as the economy slowly recovers? Would you be more likely to take out a personal loan if it came from your own bank?


Diana dykstra, President and CEO, California and Nevada Credit Union Leagues

Rebecca Borne, Higher Policy Council, Center for Responsible Lending

Nessa feddis, Vice President and Senior Advisor, American Bankers Association

Richard V. Johnson

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