Report confirms facts
In November 2008, the FDIC released a report called Study of Bank Overdraft Programs. While payday lenders and their customers have known for years that taking out a payday loan is cheaper than overdrawing your bank account, this study calls attention to this fact.
Fee comparison
Lawrence Meyers from Blogger News Network shares an example of what this report shows. He reports that the average amount obtained when bank customers overdraw their accounts is $60. The average overdraft fee? $27. Nationally, the average fee for a $60 payday loan is about $6.
Most banks charge an overdraft fee each time you make a charge on an overdrawn account. So if you use your debit card to buy a cup of coffee when your account is already overdrawn, add the overdraft fee and you’ve got yourself a $30 coffee.
Selective regulation
Meyers also points out that legislators all over the country are calling for restrictions to be placed on payday loan companies. Lawmakers call payday lenders fees “outrageous” and rant about “ridiculous APRs.” However, Meyers notes, no one bats an eyelash when a bank charges $27 for a $1 loan.
The data is astonishing, and unequivocally demonstrates that as consumer activists and grandstanding politicians rake payday lenders over the coals, they ignore the bloodsucking that occurs every time a consumer bounces a check, Meyers writes.
Report encourages responsible usage
Bouncing a check can have some pretty hefty consequences.
The great thing about this FDIC report is that it emphasizes one of the best uses for payday loans: to save money. If you know you are going to overdraw your account, and you can get a payday loan for $15 instead of paying a $27 overdraft fee it makes perfect sense. That is an excellent and responsible use of a payday loan.
Payday lending regulations hurt
It’s a bit shocking to read the reports accounting of bank overdraft fees in areas where payday loans aren’t available.
In states where payday loans were forced to shut down by … legislators, the average annual amount of NSF fees charged to consumers was just under $541. In states where payday loans are permitted, that amount is only $240, Meyers writes.
Certainly makes you think.
Payday lending critics claim that the industry “costs” American families $4.2 billion in fees. But in 2006, consumers spent $4.2 billion in ATM service charges to withdraw their own money. They paid an estimated $22 billion in NSF fees to banks and credit unions, and banks collected an estimated $10.3 billion for overdraft protection services. Businesses charged an estimated $57 billion in late bill payment fees (more than 140 percent of the total estimated payday lending volume in the U.S.). And credit card interest cost consumers more than $87 billion.
This isn’t surprising at all. I love how the social crusaders love to decry payday loans, but won’t talk about unethical bank practices, or at least the ones they didn’t have a tacit hand in. (Sub-prime mortgages and ACORN spring to mind.) Payday loans are a legitimate industry and business, and it isn’t exactly people like John Thain at the helm; these guys don’t get a bailout, because Congressmen can’t get a free trip to Scotland or a preferential mortgage because the profit margins aren’t that huge.