Visit America's Credit Unions website to find a credit union near you. (Photo Credit: CC BY/John Benson/Flickr)

One of the most important decisions consumers can make regarding their money is where to keep it. Banks are a common option, but those who have tried depositor-owned credit unions will argue that the advantages over banks make them quite worthwhile. Here are a few of the advantages of choosing a credit union versus a bank.

Shareholder versus depositor interest

While large commercial banks are the domain of corporate shareholders – and hence most concerned with generating profits for a small, select group – credit unions belong to the members. Volunteer customers even serve on each credit union’s board of directors. The sense of shared ownership is reflected in the name credit unions give to checking accounts: share draft accounts.

Interest rates on loans are generally lower at credit unions than banks, and the rate of return on deposits can be significantly higher, particularly on CDs. A credit union’s responsibility to its depositors is highly desirable for the average banking customer.

Smaller size, better individual care

Considering that credit unions are smaller than most banks and generally have fewer overall customers, the opportunity for greater individual care from a financial professional exists. The tradeoff here is that ATM networks may be smaller with credit unions, and the list of services provided will be slightly abbreviated when compared with those of a large bank.

NCUA stability

The banking crisis has caused many smaller banks to go under. Larger banks have depended upon federal bailout money and taxed the reserves of the Federal Deposit Insurance Corp. to the limit. Credit union deposits are insured against loss by the National Credit Union Administration, and the number comparison is telling, reports Bankrate. From the beginnings of the financial crisis through May 2011, 44 FDIC-insured banks failed, versus only nine NCUA-insured credit unions. This disparity exists largely because banks made more risky loans in their drive to boost shareholder profits.

Payday loans at a credit union near you

Recent programs instituted by the NCUA, such as Better Solutions, have enabled credit unions to offer payday loans and similar short term loans to customers at annual interest rates that top out at about 28 percent. A 30-day repayment period is required, and the number of loans a customer can take within a six-month period is limited to three.

Banks versus credit unions

Sources

America’s Credit Unions

Bankrate.com

MonitorBankRates.com

Many credit unions are now offering payday loans. Image: informatique/Flickr/CC BY-SA

Credit Unions, which are generally considered more trustworthy than traditional banks, are more and more frequently offering short term loans that rival payday loans in many aspects. This change comes in response to new federal guidelines. Many analysts find this trend disturbing, while others see it as offering credit union members more options.

Many find credit unions appealing

Credit unions are cooperative financial institutions that are owned and controlled by members. By dispensing prudent loans without the profit motive of traditional banks, they are becoming more and more attractive to jaded consumers. Many say they are fed up with the hidden charges and impersonal customer service they receive from regular banks. However, when it comes to immediate short-term financial needs, credit union members have often had to to look elsewhere.

That is changing rapidly as more and more credit unions are offering low-cost, short-term loans with higher interest rates.

Federal rate cap increase

The National Credit Union Administration, in a voluntary program called Better Solutions, offers a package of services and products for participating credit unions. In September 2010, the NCUA changed its rules for short-term loans, raising the annual interest rate cap from 18 to 28 percent. Under these new guidelines, a credit union must allow borrowers at least 30 days to repay a short-term loan and not to allow more than three per customer in a six-month period.

A less predatory option?

More than 500 federally insured credit unions are offering these kinds of loans. Industry advocates say they are offering their customers alternatives to more predatory lenders on the market. “We spent a long time trying to do this in a way that would work for members and for the credit unions and not be predatory,” said Debbie Matz, chairman of the NCUA.

Detractors ascribe profit motives

Detractors, however, ascribe much less altruistic motives to the loans. Some say it is just a way to generate more revenue for an industry that suffered greatly in the financial crisis of 2008-2009.

Credit unions, which operate as nonprofit groups, aren’t allowed to raise investor capital like traditional banks can in times of trouble. According to the NCUA, about 4,600 credit unions — or about 7 percent of the industry — are at a high risk to fail.

Linda Hamilton, a consumer activist in Salt Lake City, says “they are promoting these loans as payday alternatives, but they are not really alternatives.” Hamilton, who is opposed to payday loans, sees these credit union sponsored loans as little more than the same thing.

Guidelines are voluntary

Because the new NCUA guidelines are strictly voluntary, many credit unions sell loans at higher rates than the federal program suggests. The Mountain America Federal Credit Union in Utah, for example, offers a five-day $100 loan it calls “MyInstaCash.” The loan costs $12, a 876 percent annual interest rate.

Be informed

Karen Datko of MSN Money says that these credit union payday loans aren’t necessarily good or bad. “It really pays to be an informed consumer before you apply for one,” she advises.

Sources

Paydayloan.net
Washington Post
MSN

Bank of America ranked first among U.S. commercial banks on the most recent Fortune 500 list. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Phrases like “bank bailout” and “too big to fail” have left a sour taste in the mouths of consumers. The results are easy to see in recent consumer confidence polls, suggests Bankrate. The question “Do you trust your bank?” posed by banking consultants BAI & Finacle in their biannual Index of Bank Sentiment survey received negative replies from consumers. Not only that, but the survey shows that bankers’ assessment of consumer confidence is entirely out of whack.

The divide between consumer and banker opinion

The Index of Bank Sentiment survey polled a large group of bankers and more than 2,500 U.S. banking customers. According to the results, the gap between consumers who trust their bank (77 points on the survey scale) and bankers who believe consumers trust them (121 points) suggest a cavernous divide, rather than a mere difference of opinion. A mark of 100 points for either side would have indicated reasonable confidence.

Some financial experts believe that the rise of non-traditional consumer credit products like payday loans supports the findings of the BAI & Finacle survey. If the answer to the question “Do you trust your bank?” is no, it is not surprising that a consumer would look to other financial institutions for small loans.

Trust versus perception

Curiously, while the Index of Bank Sentiment survey indicates that most consumers didn’t trust their banks (63 percent), 64 percent of consumer respondents still indicated that their primary bank has a “good image and reputation.” Forty percent felt their bank wasn’t looking out for their best interests.

In terms of bank fees, a whopping 85 percent of consumers voiced their expectation that they should not have to pay for a checking account. Only 44 percent found current bank fees to be reasonable.

Commercial banks on the Fortune 500 list

While community banks and credit unions have become increasingly popular with consumers, large commercial banks still reign supreme when it comes to capturing consumer business. According to the recently released Fortune 500 list, 20 commercial banks cracked the list of top U.S. companies, with seven in the top 100. Bank of America Corp. ranked first among commercial banks, and ninth overall on the Fortune 500. JPMorgan Chase & Co. (13 overall), Citigroup (14), Wells Fargo (23) and Goldman Sachs Group (54) rounded out the top five.

US consumer opinion of other financial service companies

A world of financial service companies does exist beyond banks, from investment brokers to payday loan companies. Expanding upon the BAI & Finacle survey, The Edelman Trust in U.S. Financial Services Survey found that almost half of consumers polled trusted their financial service company less in 2010 than the previous year. Forty-six percent of respondents attributed the erosion of trust to corporate greed, while 20 percent felt that the financial services industry exacerbated the country’s financial meltdown.

Sources

Bankrate.com

Shared Financial Success

Author Ramit Sethi on ways banks nickel and dime you

Small banks and credit unions feel the CFPB is brandishing a big whacking stick. (Photo Credit: CC BY/dullhunk/Flickr)

The Consumer Financial Protection Bureau has been called out by the American Bankers Association, reports Investors Business Daily. The banking conglomerate insists that once the CFPB begins enforcing new Dodd-Frank Act laws regarding loan disclosure and transparency this summer, the costs of bureaucracy will send 1,000 community banks and credit unions to their doom. It’s the kind of change small banks can’t see a good reason for.

Strong enforcement arm in consumers’ corner

Elizabeth Warren, the interim chief of the CFPB, has warned that “change is coming” and that all U.S. financial institutions will have to play by new rules. More than half of the Consumer Financial Protection Bureau’s budget will be directed at supervision and enforcement, a fact Warren has used on multiple occasions to accentuate talk of the fervor with which the CFPB will defend the financial rights of U.S. consumers.

Community banks and credit unions fear their own Rapture

ABA representatives have stated publicly that if Dodd-Frank rules go into effect as they are currently written, more than 1,000 banks will be forced out of business before the end of the decade. As the CFPB will be able to request any information it wants at any time and in any format, the ABA believes that the strain of compliance will take too many resources away from small banks’ customer service efforts. Furthermore, the Home Mortgage Disclosure Act’s eye against predatory lending will reportedly require banks to collect more borrower demographic information than ever before so that the CFPB can determine whether discrimination is occurring.

ABA Chairman Stephen Wilson told Investors Business Daily that all of this amounts to bad news for community banks and credit unions, as smaller financial institutions tend to make loans that larger banks avoid. The more small banks that shut down, the fewer capital sources remain available. This is passed on to consumers in higher rates and fees, argues Wilson.

“If we tie up our capital system, it’s going to take money away from the people who need it to create jobs,” warned U.S. Chamber of Commerce President Tom Donohue.

The battle over Elizabeth Warren

Though the organization is slated to launch July 21, the CFPB still doesn’t have a permanent chairperson in place. Elizabeth Warren will likely be nominated by President Obama, but numerous lawmakers who support the banking industry have attempted to derail the Warren nomination. House Republicans believe the CFPB will have too much power, while Warren has countered that her critics’ true goal is to make the CFPB “toothless.”

By way of comparison, the Sarbanes-Oxley Act of 2002 – one of the more significant pieces of financial regulatory legislation, pre-Dodd-Frank – changed 16 rules over two-and-a-half years. The Dodd-Frank Act will require more than 250 rule changes over several years.

Sources

American Bankers Association

Florida Realtors

Investors Business Daily

Sarbanes-Oxley Act of 2002

Rep. Sean Duffy (R-Wisc.) fights for community banks and credit unions

Consumers fed up with bailouts, bonuses and bogus fees are switching to local banks and credit unions by the millions. Image: CC bk1bennett/Flickr

Wall Street banks watched their customers jump ship by the millions in 2010. Community banks and credit unions have watched their clientele grow as consumers disgusted with bailouts, big bonuses and deceptive fees move their money. A driving force behind the movement is the “Move Your Money” project, a campaign that assists consumers who want to divest from Wall Street and invest in local financial institutions.

Big bank defections a growing trend

Wall Street banks, in a game of cat and mouse with regulators, are devising creative new ways to gouge consumers as traditionally abusive practices are outlawed by financial reform. Big banks bet that their customers are too lazy, busy or negligent to notice they are getting nickeled and dimed into giving up dollars. For example, many banks that can no longer charge usurious overdraft fees have discontinued free checking. Carly Fried at MoneyWatch reports that in a recent presentation to shareholders, a Chase executive boasted of making about $1 billion simply by converting 8 million free checking accounts into a revenue stream generating $10 to $12 in monthly fees. But that windfall could be short-lived. The largest banks lost more than 4 million accounts last year. According to the research firm Moebs Services, 7 million to 9 million more accounts could move to community banks and credit unions in 2011.

The Move Your Money campaign

Consumers who question the new checking account fees are often told by their banks that the government forced it to take such action. What they should know is that 65 percent of banks in the U.S. still offer free checking despite the Dodd-Frank bill. The easiest way to find those financial institutions is at moveyourmoneyproject.org. Move Your Money is a campaign organized by Arianna Huffington. The Move Your Money website search tool locates the closest local community banks and credit unions simply by typing in a zip code. After Huffington appeared on CNN to promote the website in January last year, 80,000 people used it to find a local financial institution. In the past year moveyourmoneyproject.org has been getting up to 45,000 page views a day.

Closing a bank account

For consumers thinking about moving their money, closing a bank account should be done carefully. Open an account at your new financial institution first, then make sure all your checks have cleared. Physically go to your bank to close your accounts, but call before you leave to learn about its policies about closing accounts. Some banks will try to ding you one last time with a hefty fee. Be sure to go before 3 p.m. on a weekday so the staff has plenty of time to complete your request. Bring two forms of identification, including a photo I.D. Don’t leave without the balance of your accounts. If the bank can transfer the funds electronically, have it do so. If not, take the money with a cashier’s check or cash.

Sources

Huffington Post

Christian Science Monitor

CBS MoneyWatch

ehow.com

Next in the backlash from banks in the battle over interchange fees is the loss of debit card rewards, which JP Mortgan Chase is already dropping. Image from Wikimedia Commons.

The next customer perk to go on the chopping block at the nation’s largest banks is debit card rewards. JP Morgan Chase stopped offering debit card rewards to customers in February, and will stop giving rewards to debit card swiping customers entirely in July. The program was closed due to the ongoing battle over the pending cap on interchange fees.

Banks contend they will be brought low with interchange fee cap

The possible cap on interchange fees, or the fees banks charge merchants to transmit payment from debit purchases, has caused the nation’s largest banks to start curtailing customer rewards and incentives, such as free checking. The next casualty of the interchange fee battle is likely to be debit card rewards, according to Bloomberg. Leading the charge in cutting back on rewards for customers is JP Morgan Chase, which stopped offering enrollment into the debit card rewards program to new customers in February. Chase will stop offering rewards altogether on July 19, though any reward points that have been accrued by that point will still be honored. Consumers may eventually need same day loans to use their own money.

Fees at ATM locations going up as well

Another response to financial reform laws has been to raise fees for using automatic teller machines out of a bank’s network, according to MSNBC. JP Morgan Chase, the second largest bank in America, is currently testing $4 and $5 fees for customers who use Chase machines that aren’t Chase customers. The program is testing $4 fees in Texas and $5 fees in Illinois. All other states will retain the $3 fee for non-Chase customers, which is above the $2.33 national average. Chase customers will still pay only $2 per transaction at non-Chase ATMs, which is also above the $1.41 national average. Chase has the second largest ATM network in the nation. TD Bank and Citi bank are following suit, and Wells Fargo and Bank of America are likely to not be far behind. The idea of Chase, Bank of America and Wells Fargo having to run for installment loans because legislation prevents them from gouging customers is not likely to cause many people discomfort, but there is a catch.

Credit unions would also suffer

Merchants are charged interchange fees by for-profit banks and non-profit credit unions alike, according to Forbes, and that is why credit union trade groups such as the National Association of Federal Credit Unions, oppose the Durbin Amendment to the Dodd Frank Act. Credit unions and community banks are not as easily equipped to absorb the loss of revenue from interchange fees, which will be lowered to 12 cents per transaction from the current average of 44 under the current proposal by the Federal Reserve. Currently, bills are being introduced into the House of Representatives and Senate which would delay the Durbin Amendment from taking effect for two years, in order to study the possible fallout.

Sources

Bloomberg

MSNBC

Forbes

Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

Safeguard your credit cards so your experience with them will be a dream come true instead of a nightmare. Many consumers crave expensive fashions or toys purchased the credit card company’s money. This practice is great if you are the lender, but it’s dangerous for customers. However, if you learn to use them to your advantage, credit cards can be beneficial to you and your credit report.

Dangers of doing business with big banks

Financial institutions make a living on the high interest customers pay. Debt can accumulate so fast that the minimum payment will be all that the consumer can afford. The minimum payment may be low, but it’s not to benefit the card holder. Many payment plans are designed to take the buyer more than 30 years to pay it off. Some credit card companies offer the option to skip a payment, but interest still accrues. When a special promotion offers “same as cash” within a certain number of months, all the interest will be added to the bill if a balance is still owed past the due date. These companies are not in business to run a non-profit agency to assist those who have financial needs. Instead, they aim to benefit their investors with huge profits. Don’t become a victim of lawful conduct that borders on unethical and benefits huge financial conglomerates.

Credit traps to avoid

Avoid making large expenses whenever possible on  credit cards. Many doctors offer a credit card to pay for their services. Owing for medical treatment can get you caught in a web of high interest and unnecessary stress. Automobile loans should be purchased through a bank that offers the lowest interest; don’t just automatically accept the dealership’s funding offer. Usually, credit unions offer the best rates and lower monthly payments. Some consumers have purchased homes with a cash advance taken out on several credit cards at one time. This practice does not make financial sense because interest rates on cash advances can be astronomical.

Pay attention to credit card terms

How does one budget and monitor the use of credit cards? Always know when the payment cycle starts and ends. If a payment is made too early, you could end up with a late fee added to the next billing cycle for non-payment. The fee could be enough to take a family of four out to dinner. Pay the bill off each month within each cycle. Note the billing cycle is less than 30 days in some cases.

Avoid bad purchasing habits

Avoid treating  credit cards as a second income. Use them as a convenience and for easy record keeping. Credit cards can offer protection that cash doesn’t. Items purchased with a card can be disputed more easily, and retailers know this. Get one credit card through your bank instead of several department store cards. Shop for the lowest interest rate, and read the fine print on every application. Whenever you get a junk mail credit card offer, call and ask the company to take your name from the list. Protect your personal information. It’s one of your major assets.

Less is more

One to three credit cards with a low limit can be beneficial because it shows stability on your credit history. Keep in mind that whenever a credit card is closed, it shows up on your credit report. You can use credit cards to your advantage. Good credit management practices can build a portfolio that financial institutions will use to approve loans when you want to buy your next car or home.

One year after the credit card reform law was passed, government agencies studied whether credit card holders saw benefits. Photo credit: MoneyBlogNewa/Flickr/CC-BY

Over the past few years, Congress has passed a slew of financial reform laws. There has been opposition, to be sure, but laws like the CARD Act were created in order to ensure that consumers were being treated fairly by financial institutions. The effects have been as intended in some ways, but there will be consequences.

Credit card reform laws reviewed after one year

Recently, the Consumer Financial Protection Bureau performed its first function, according to MSN and did a study regarding the impact of the Credit Card Accountability Responsibility and Disclosure Act by randomly polling people who held at least one credit card. The Bureau found that the credit card law was actually working The percentage of people in the study who reported an increase in their interest rate dropped from 15 percent before the CARD Act to 2 percent after it was passed. When subjects were asked if they benefited from the law, about 57 percent said that they noticed positive benefits from the law.

Bank backlash

When reforms or stricter regulations are passed, large multi-national mega-banks seek other avenues for income. One of the casualties of financial reform has been free checking. Large banks, such as Bank of America, JP Morgan Chase and Wells Fargo, are getting rid of free checking. Debit transactions for account holders at large banks may end up capped at $50 to $100, according to CNN. When customers pay merchants with debit cards, the merchant is charged an “interchange fee” by the customer’s bank to complete the transfer. The Fed is rumored to be considering a cap of 12 cents per transaction, far below the current average of 44 cents. Interchange fees generate billions in revenue for large banks, so they will look to make up lost ground by gouging customers.

The conspicuously silent party

Amid all the buzz surrounding large banks in financial news outlets, there is scant mention of credit unions. Credit unions are affected by new banking and credit regulation but not as adversely because the motive for business operations is the service of customers, not making sure shareholders and CEOs are awash in cash. Credit unions also can offer lower interest rates on credit cards, car loans and personal loans because they are nonprofits and face less risk in the marketplace than banks.

Sources

MSN

CNN

Banks and credit unions don't offer a loan until payday like a payday loan lender, because they can't. Image from Wikimedia Commons.

There is a good reason a traditional bank or credit union doesn’t offer a loan until payday to customers. Many people have wondered why it is that a small loan for a short period of time is solely the province of payday lenders. Banks and credit unions steer clear of the practice. There are good reasons why payday loans will never be offered by traditional institutions.

Typical institutions do not offer a loan until payday

A lot of people have observed that while you can visit any payday loan store for a loan until payday, a similar loan is not available at a bank or credit union. It turns out there are some very good reasons for that. Firstly, banks and credit unions have to shield themselves against risk. Most people who use payday loans when they need to borrow money do repay them, but the limited documentation needed is less than the average bank or credit union is willing to accept. Part of bank underwriting criteria is normally to perform a check of credit scores, which a person who needs quick cash doesn’t have the time to wait for.

Studies prove they can’t

Banks and credit unions cannot afford to offer a loan until payday, the way a cash advance or payday loan lender does. It isn’t profitable enough for them, and a bank’s first priority is usually the shareholders. A study by Victor Stango revealed that not only were credit unions not able to offer lower prices on payday products and break even or profit, they were also hampered by not having hours or locations as convenient as payday lenders. The same study revealed only 6 percent of National Credit Union Association members offered a similar product.

Reformers should not hold their breath

It is not likely that banks or credit unions will offer a loan until payday anytime soon. They have status as institutions, which leads many to think they are safe. However, the credit cards and overdraft policies many have makes them anything but. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Payday loans can help you save some coin. Image from flickr.com/moneyblognewz

There are plenty of financial experts who claim that if you’re in a situation where you need same day loans, there are consumer payday loan alternatives offered by banks and credit unions that are less expensive. However, as sources like ConsumerAffairs.com indicate, many of these bank and credit union quick loans available the same day are burdened by their own high fee structure. A recent study by the National Consumer Law Center (NCLC) reviewed hundreds of different types of small, same day loans that banks hype as payday loan alternatives and found them to be less than desirable.

Payday loan alternatives: Shouldn’t they be cheaper?

Setting aside the much-referenced academic study that shows that same day loans aren’t actually expensive, the truth is that when it comes to payday loan alternatives, most do not improve upon the model they’re designed to replace. Lauren Saunders of the NCLC stated in the report that “too many providers of so-called payday loan alternatives hit consumers with some of the same onerous provisions that predatory lenders use to saddle unwary and vulnerable borrowers with loans they can’t afford to repay.”

Report co-author Leah Plunkett agrees, stating that while “Many genuine payday alternatives are in the market,” many of the alternatives are worse financially than payday loans. Specifically, Plunkett references check account cash advances from such big banks as Wells Fargo Bank, U.S. Bank and Fifth Third Bank. “They are payday loans, plain and simple: triple digit loans repaid on the next payday.” That’s hardly an improvement over the already popular same day loan product.

Credit unions offer quick loans the same day, but at what discount?

The NCLC study found one credit union in California – Kinecta Federal – that exploited loopholes in lending laws in order to profit as much as possible while still being able to suggest they’re one of the cheaper payday loan alternatives. Kinecta offers a 14-day loan with an APR of at least 362 percent, a rate which is comparable to some same day loan rates, but not cheaper. Other credit unions offer what amounts to expensive payday loan alternatives via a third party lender, E-AccessLoan.com.

What should payday loan alternatives do for consumers?

“Payday loan alternatives that help consumers must be repayable affordably and over time, so that hard-pressed borrowers who need short-term help can climb out of debt rather than get trapped in it,” said Saunders. Unfortunately, many of the payday loan alternatives banks and credit unions offer are not their as an offer of goodwill. They want to profit from consumers as much as the law will allow.

Sources:

ConsumerAffairs.com

Related Video:

Most credit unions won't give you a duck. Most credit unions won't give just anyone short term loans, either. (Photo: Picasa)

Short term loans and similar money loans have been a thorn in the side of banks and credit unions who have sought to gain a foothold as direct lenders in the short term credit market. Payday lenders have addressed the consumer need for quick cash with aplomb, making successful entry into the market perhaps more difficult for traditional financial institutions. As a recent study by UC David Ph. D. Victor Stango entitled “Are Credit Unions Viable Providers of Short-Term Credit” suggests some of the reasons why credit unions (and by extension, even traditional big banks) aren’t mounting any serious completion for payday lenders.

Short term loans just as expensive at credit unions – or even pricier

Stango points out that there simply isn’t a preponderance of evidence proving that short term loans are a viable product for credit unions. To be competitive and hence profitable for a credit union, short term loans must be priced lower than that of payday lenders. In addition, requirements and terms must be attractive to consumers. Having low cost but being riddled with red tape won’t work, and if the price is too high, consumers will look elsewhere.

Fees within fees at credit unions

Of the 7,749 credit unions covered in Stango’s study, only six percent even attempted to offer short term loans to the public. That’s 479 credit unions. Of those, the initial short term loan APR was generally lower than those of most payday lenders surveyed, but not so much that it made a great deal of difference. However, many of the credit unions with lower loan APRs actually had additional loan origination fees that made the cost difference either negligible or tipped it in favor of the payday lenders.

Why did only six percent of credit unions offer short term loans?

The vast majority of credit unions contacted by Stango’s assistant actually refused to explain why they do not offer short term loans. The few who were willing to go on record claimed short term loans were either “too risky” (too many delinquencies), there was “insufficient demand” (which seems unlikely, considering the wide market for short term loans from payday lenders) or “interest rates are too high” (perhaps creating a lack of demand, at least for short term loans with traditional financial organizations).

Federal credit unions are shackled by federal law

Federal credit unions can charge a maximum of 18 percent APR on a loan, which means that for every $100 loans, that would be an interest charge of $1.50 per month. Even if every customer repaid their short term loans on time, that simply isn’t enough to make the product viable for credit unions. Some credit unions have proven able to get around that cap and raise the bar to 36 percent APR, but in almost every case, additional fees are necessary for them to even break even with short term loans, Stango discovered.

Strict standards

In addition to the problems of cost, most credit unions in Stango’s study require that borrowers be members of the credit union for at least 60 to 90 days. Also, if the customer has made any late payments on other loans or filed bankruptcy, they are generally found to be ineligible for short term loans before taking a payday loan. For all of the reasons stated here from Stango’s study, short term loans are simply not a viable product. Payday lenders can provide short term loans and other forms of money loans at somewhat lower cost and with much less administrative hassle.

Source:

“Are Credit Unions Viable Providers of Short-Term Credit?”

Related Video:

Today, there are home loans for all kinds of home buyers

Home loans were once the exclusive business of banks. Just a few short years ago credit unions joined the fray and banks were no longer the only option when it came to borrowing money for a home purchase. Together, banks and credit unions offered competitive options when it came to mortgage funding and served millions of homeowners nationwide. In today’s lending market, however, there are new players. The number of home-finance providers is steadily growing and offering consumers more options than ever before.

Mortgage banks

A mortgage bank is a direct lender, which means that bank employees review applications and make lending decisions. Mortgage banks, in turn, sell loans on the secondary market. The biggest benefit of the mortgage bank is its trustworthiness. These institutions are regulated by the state and federal governments and usually have ties to their local communities. It can be advantageous to deal directly with the loan-source business, rather than dealing with an outsourced customer-service agency. The downside of dealing with mortgage banks, however, is that each one offers its own programs and making comparisons can be complicated and time-consuming.

Mortgage brokers

A mortgage broker is a middleman in the world of mortgages. A single broker can represent a number of different lenders. A mortgage broker’s specializes in matching the right loan product with the right customer. The biggest benefit of working with a mortgage broker is that he or she has a wide range of products to offer, and the necessary expertise to compare them and choose the best one for a borrower’s particular needs and qualifications. Another advantage is that a mortgage broker knows which lenders are most likely to approve a particular application.

After an initial assessment, the broker can steer a borrower to the right company for the loan. The downsides are that mortgage brokers often include additional fees in their contracts and they are not regulated in all states. To protect themselves, people borrowing money through a home-loan brokerage should do their own comparison research, which defeats one of the primary reasons for using a broker in the first place.

Home builders and real estate agencies

Other new entrants to the world of mortgage lending are home builders and real estate agencies. Many now offer their own in-house mortgage lenders to help sell their properties. Competition in the lending world is fierce, and too many builders and real estate companies who suffered losses in the recession have taken matters into their own hands by creating lending worlds of their own. These lenders can be useful to borrowers because, like mortgage brokers, they work with individual applicants to find the best option. Additionally, most of these lenders have strong ties to traditional lending institutions, so that if they can’t find the right product for a borrower, they can refer them to a bank can make the loan.

Find the right mortgage lender before you buy

When it comes to borrowing money to buy a home, there are more options than ever available. Home buyers should research the options and choose the one best suited to their needs and requirements. It may take some time to figure out which way to proceed, but getting the right mortgage product when you buy your home can mean a stress-free future.

If you’re thinking of borrowing money, apply here!

Many major banks have been making the news more recently; this is due to their bad gambling predictions regarding mortgages and their overall poor mismanagement. It would be a very bad generalization and inaccurate to blame all banks for their wrongdoing. The larger banks have been predators preying on innocent consumers for a very long time, while constantly advertising that they care about their consumers. Banks are very vague about mentioning certain things to consumers that might hurt their reputation as a financial institution.

Four things your bank will forget to discuss with you.

#1. Debt Cancellation

While debt cancellation is not regulated as credit insurance, this product is extremely overpriced, but it usually serves the same exact purpose of insurance. When you are unemployed, debt cancellation will pay off your balance. This product is sold and advertised as a “point of sale”. Getting this type of insurance is risky and debt cancellation should always be cheap for the consumer.

#2. Monthly Fees

Banks have made it easier to identify the types of consumers they want by how much they charge for their monthly fees. Many consumers live from paycheck to paycheck and cannot afford to pay a bank’s transaction fees, ATM fees, and the minimum balance out of pocket. There are reputable banks in the market that do charge lower fees for their banking services.

#3. Overdraft Fee Protection/Lines of Credit

Do not be so quick to fall for the double talk that banks use very frequently about overdraft fee protection. You have to read your contract thoroughly. The larger banks are becoming more liberal in regards to their check payments, authorization of debit transactions, and overdraft policies. These large banks did this so you would not have enough available funds in your bank account to cover the expenses.

These banks are getting away with robbing their consumers and they have profited from these practices. The consumers are receiving higher overdraft fees that were illegally authorized and the banks will offer consumers a line of credit to finance the overdrafts. This is a very clever strategy created by many financial institutions across the country. The consumer is stuck with insanely high interest rates that range from 16% to as high as 29%. You have to monitor your account balances because the bank is not going to monitor it for you.

#4. The Teller Fees

Almost all banks have this philosophy; if you do not have a minimum of five figures in your bank account, you are useless to them. Banks have created this type of fee structure for the consumers that they want. If you desperately need or want to use a teller, do not pay for the privilege to use one. The bank does not care; some of these banks will charge you $3.00 or more per transaction for using a teller.

You must read all of the brochures your bank has given to you about their services. You need to pay close attention to the overdraft fees, fee per check, fee per teller transaction, and the requirements for the minimum balance for your account. Many consumers do not take the time to read all of the fine print in their contract, but you do not want to be charged ridiculous fees or be sucked by the bank to take out a loan you did not have take out at all. The customer is always right and you are the bank’s customer. The banks are supposed to serve you, not the other way around.

Credit Unions are an alternative for your financial needs.

If you want to avoid all of these fees completely, you have to go to a financial institution that is more about the customers and not about profiting from the customers. Credit unions are the perfect solution. Credit unions have lower fees and better rates than banks. Credit unions were designed to focus on the customer aspect of banking and not on the profitability aspect that many banks obsess over today. Credit unions generally have the same financial services that most banks have.

The majority of Americans can qualify to become a member of a credit union and, depending on the union, the membership is free. Some credit unions require a very small deposit of $25.00, but it is definitely worth it. Many Americans have not heard or seen anything about credit unions and that is why many of them are not aware of what they offer. Credit unions do not advertise and spend money to make profit from the mass media outlets like most banks do.

On the community level, smaller banks and credit unions give back to the people who need financial help.

You’ve seen it in the news and you’ve experienced it firsthand. Banks have cried to the government for bailout money to continue operating, they received billions of taxpayer dollars and what did they do with that money? High salaries and executive bonuses are still common in America’s big banks, and the American people are fed up. They use payday loans when they need quick cash, but what about long-term solutions? The Financial Crisis Inquiry Commission (FCIC) and well-informed panel members like Heather Murren are on the right track, pursuing bank CEO with probing questions about regulatory matters. But what can average consumers like yourself do with your money if you no longer want to support big banks and their greed and treachery? You can Move Your Money!

Community banks and credit unions build communities

Move Your Money is a grassroots effort that is designed to shift power “away from Wall Street and to Main Street,” according to MoveYourMoney.info. In a recent article, Phil Britt points out that the movement is supported by The Huffington Post, which is a significant organization to have in one’s corner. No more Goldman Sachs, Morgan Stanley, JP Morgan/Chase, Citibank, Bank of America or Wells Fargo, says Move Your Money. They all “took billions in taxpayer money and have cut lending to businesses by $100 billion.” Post founder Ariana Huffington identifies this as “populism at its best… a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest.” If the American people do not take a stand, big banks will continue to control your money (and likely mismanage it).

Community banks support them

Berdell Knowles of the Community Development Bankers Association defines the culture gap between average citizens and big bankers. He blogs that “The bank executives who make the decisions on how to use the earnings from your money, whether it be to pay management bonuses or to invest in sub-prime mortgages, will probably know little about you or your community.” The natural alternative is community banks that use their economic power to directly help local economies (rather than funneling it into the gigantic overhead big banks bring to the table).

Not only that, but Knowles acknowledges that a community bank might have better insight into a borrower’s creditworthiness if they’re familiar with the customer. It’s a personal touch that big banks can’t possibly duplicate. Another thing community banks have over big banks is specific community economic funds distributed by the government (federal and state). An example Britt gives is the three percent TARP funds for Small Business Lending. There were $1 billion in assets there, and it was specifically for community banks.

Are people listening to Move Your Money? Yes they are

Credit Union National Association CEO Dan Mica has blogged that “consumers are already voting with their wallets in favor of credit unions.” Two percent credit union membership growth in 2009 is the most that industry has experienced since 2001, so the swing is quite real. Rep. Barney Frank had his finger on the pulse of the people when he said that the mortgage crisis would never have happened if big banks behaved like community banks and credit unions. People see what needs to be done, and Move Your Money is a way to mobilize them. When the people need money, they can use payday loans, but in the long term, community banks and credit unions are much more worthwhile to support that America’s treacherous big banks.

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Have you had it up to here with your bank's overdraft protection schemes? You aren't alone, according to the Center for Responsible Lending. (Photo: flickr.com)

If you’re able to see past the shady origins and history of the Center for Responsible Lending, you’ll see that occasionally they do good work that benefits society. While they’re certainly no friend of the payday loans industry, I find that their recent report on the overdraft fees and overdraft protection rackets is worth noting for any financially conscious consumer. Personal Money Market wants you to be informed when it comes to your money, so take the CRL’s findings as a word of caution when it comes to the twisted world of overdraft fees and protection.

Major Overdraft Findings That Should Give You Pause

Overdraft fees and overdraft protection costs have skyrocketed in recent years. According to the CRL’s findings, there are three shocking points of which we should all be aware:

1. Overdraft occurs frequently. Over a 12-month period, the CRL found (based upon Federal Reserve data) that more than 50 million Americans overdrew their checking at least one time. Of those, more than half (27 million) had five or more.
2. How much operating income did overdraft feeds produce for banks and credit unions in 2008? Try $24 billion. Broken down, it’s been noted that a credit union could derive as much as 60 percent of their operating income from overdraft fees and overdraft protection.
3. Think overdraft is under control? Think again. From 2006 to 2008, the CRL found that banks and credit unions upped the penalty by 35 percent.

Were You Even Asked to Opt Into This?

For most people, the answer is no. When you sign up for a checking account at your bank or credit union of choice, you’re automatically enrolled in an overdraft program. And buried in the fine print of your contract is the overdraft fee schedule. Generally, transactions consumers don’t have the money to cover are automatically paid by the bank or credit union. What the consumer gets for the trouble is a penalty per transaction in the neighborhood of $34. Furthermore, banks and credit unions tend to charge an additional daily fee for as long as a consumer’s account balance remains overdrawn. Regardless of whether an account is overdrawn by $100 or $.01, fees can mount – and no bank or credit union I’m aware of works on a sliding scale. It’s all about flat fees that the consumer must pay. And CRL research indicates that for every $1 in overdraft protection credit extended to consumers using their debit cards, $2 in fees are assessed.

The Banks’ Defense

It’s all about protecting a consumer’s good name, they might say. By providing this “service” to customers, banks and credit unions claim they’re keeping people from bouncing checks. NSF fees from banks, bad check fees from merchants and (potentially) other late fees could amount to a person’s picture being hung on the wall in mug shot-like splendor.

Bouncing Checks Aren’t the Story, However

Debit card and ATM transactions are the big issue. The CRL finds that if banks and credit unions wanted to, they could simply decline transactions that would put consumers in the red. However, most do not do this. They pay for the transaction but “help” the consumer by severely penalizing them. While consumers should certainly be responsible with their money, digging unnecessarily deep holes for them to try to climb out of after they’ve already made mistakes is a questionable tactic on the public relations front. In the end, it comes across as a money grab.

The Reordering Transactions Shell Game

Did you know that banks and credit unions reserve the right to reorder your banking transactions from highest to lowest, even if the lesser transactions occurred first? This catches millions of consumers who gamble that a large expense won’t clear until after their paycheck is deposited. If you’ve ever done this (I know I have), know that you’re playing a losing game.

Automatically Dragged Over the Coals

This is what John and Jane Consumer typically get when they sign up for a standard checking account. Many aren’t even aware that cheaper options are available. Some banks may offer a cheaper, more formal line of overdraft credit, or even a link to a savings account in the case of overdraft. However, even these can be expensive. Payday loans, when used properly, can cost even less. Did you expect me to say otherwise?

A Terrible Trio for Consumers

Using FDIC data from 39 member banks, the CRL digs into just what the overdraft fee jungle means for consumers. They do this by addressing the three points raised above.

1. Overdraft Occurs Frequently

Of the 6.5 million accounts held in the FDIC sample, around one in four experienced at least one overdraft over the course of a year. One in seven experienced five or more. As mentioned earlier, this translates to about 51 million Americans stuck in the overdraft fee quagmire. Those with five or more instances are sinking beneath the muck. The CRL found that repeat offenders tended to be of lower income, single, non-Caucasian renters. Considering that the FDIC points to the 18 to 25 age group as being most likely to fall into the overdraft trap, it seems that more effective financial education is in order. Learning to control excessive impulse spending, balance the checkbook and consider options like payday loans in emergencies could help anyone.

2. Excessive Overdraft Fee Profits

Banks and credit unions are conveniently not obligated to report what they make on customers’ overdraft fees, but the FDIC did manage to compile from a sample of its member banks. They found that that around 69 percent of their service charge income came from NSF fees. Extrapolating the data, the CRL finds that this amounts to $34.3 billion in fees for 2008 alone for all service fees. Sixty-nine percent of that is $23.7 billion, a staggering sum that should be much lower. As banks, credit unions and even credit card companies are jacking up fees, that figure could be even larger in 2009.

3. Fees are Out of Control

As I was saying, overdraft fees are a source of concern for any consumer who depends upon the traditional banking industry to care for their money. As the collection has increased 35 percent from 2006 to 2008, the CRL wonders if there’s a ceiling. Organizations like the proposed Consumer Financial Protection Agency and the Credit Card Bill of Rights are designed to help make right what has gone so far wrong, but will they have the healthy canine teeth to tear away the sweet meat?

As mentioned, fees for individual overdraft transactions and days a balance is in the red are commonplace. A cup of coffee, a tank of gas and a few miscellaneous convenience store purchases can quickly and silently become hundreds of dollars in overdraft fee debt. The CRL finds that the monthly average for individual debt card usage is 17. More than a quarter of those are for less than $10.17 on average. Imagine the possibilities across the banking industry. Since this use has exceeded credit card use since 2005, it’s also no wonder that the credit card industry has sought myriad ways to charge their customers with fine print clauses.

Fruits, Vegetables and Overdraft Fees

That sounds like part of a balanced diet these days. The CRL frightens us all with the details of how Americans spend “about the same amount” on overdraft as they do on fruits and vegetables. As for grains and other essentials like postal stamps and books, overdraft fees are clearly in the lead, say the CRL. Considering how difficult financial matters are during the recession, is it any wonder that the CRL found that most consumers would prefer that a transaction be denied than to have to paid exorbitant $34-per-transaction overdraft fees?

How Can This Problem Be Fixed?

This is your checking account on overdraft protection. (Photo: http://tolweb.org/)

Beyond preparing consumers to make sound financial choices, the financial abuses inherent in the traditional banking system must be exorcized. The Federal Reserve is considering that very matter, as is Congress. Large-scale change is needed.

Prohibit Overdraft Fees on Debit Card and ATM Transactions

This exception would be a welcome aid. If a fee is absolutely necessary, then a bank should have to provide a more highly visible, real-time warning so that debit and ATM infractions don’t fly under the radar and destroy overtaxed consumers’ budgets. If warning sign appears, consumers would have the choice to back out of the transaction (if the merchant didn’t simply rule out that method of payment). Some banks and credit unions block such transactions completely. The CRL suggests that all should follow the practice.

Overdraft Fees Should Be Proportional

The CRL’s finding that the amount that banks pay out to merchants for consumer overdraft is about half of what they actually charge consumers for the “convenience” is another signal beacon that change is needed. Flat fee overdraft charges are unnecessary when compared with the actual cost of covering the overdraft to banks and credit unions. It is understandable that banks and credit unions have to think of profit margins, but the current overdraft fee system is tantamount to gross customer abuse. The CRL suggests that an overdraft line with a reasonable rate of interest would be easier for consumers to swallow. Then again, rather than dealing with revolving interest, why not use payday loans?

There Should Be a Limit

If a consumer dashes their checking upon the overdraft fee rocks, banks and credit unions should be required to offer an alternative product at lower cost. A consumer shouldn’t be allowed to rack up more than six overdraft fees per year, says the CRL. This is what’s called weaning traditional financial institutions from their habits of excessive profit. Getting by with a reasonable profit margin may mean fewer executive retreats to Cabo San Lucas, but it’s the right thing to do.

No Overdraft Protection Without an Opt-In

This is self-explanatory. No service or accompanying gross fees should be thrown at a consumer without their approval. The CRL found that around 90 percent wanted to be able to choose whether they would have overdraft protection or not, so banks and credit unions should listen. If not, they run the risk of losing even more customers to payday loans when financial calamity strikes. Banks and credit unions certainly have a larger war chest to draw from, but that doesn’t mean they shouldn’t try to be competitive.

Make Banks Toe the TILA. Payday Lenders Do!

The Truth in Lending Act requires that lenders disclose certain information to the public. It seems that information regarding the amount of money banks collect in overdraft fees should be included in the purge, much the same way payday loan companies make their APR known. Since overdraft protection is an act of extending credit to a consumer, banks and credit unions should be forced to clarify just what they’re charging customers. No bank or credit union should be exempt from the law.

There’s Nothing Up My Sleeve

The Consumer Financial Protection Agency is on its way. President Obama made a great deal of show about the related Credit Card Bill of Rights. It’s time for banks and credit unions to be made to tow the line. If you’ve even gone through the hassle of dealing with overdraft, you know that there has to be something better behind the curtain. In the case of payday lenders, there’s nothing “up the sleeve.” In a short term financial emergency, payday loans are up front about fees, which typically are much less expensive than falling back on overdraft protection. The consumer should have the power to choose what fits their financial circumstances best.

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