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 Store 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.

Related Video:

It’s springtime, and that means it’s time for baseball. So let’s use a baseball analogy to explain how installment loans can keep you in the game.

Step into the batter’s box. Take a few practice swings before you dig in and await the pitch. Will it be a fastball? Curve? Inside or out? OK, get ready – here it comes! Or should I say here they come? Pitches rifling your way, from all sides, high and low!

Look out!

Try as you might, you won’t hit every pitch. It’s the same way with expenses in our day-to-day lives. A budget that’s flexible enough to absorb all of life’s surprises is a good thing to strive for, but we know that realistically it doesn’t always happen. Medical bills, car repairs or even something as unfortunate as bail money can pop up unexpectedly and throw your budget out of whack.

If you know that you’re going to have the money next payday to cover the cost, a payday loan can be the perfect thing to protect you from overdrafting your bank account. But what if other financial obligations will prevent you from being able to repay that payday loan on your next payday? Does that leave you in the hole 0 and 2 without a bat in your hands?

Not with this pinch hitter: installment loans

Step up to the plate with installment loans. They’re quick money that you don’t have to pay off all at once.Take on any expense that comes your way like a switch hitter with power from both sides of the plate – you can pay back your loan in small portions over several paydays until it’s paid off. Ask your lender for details. In baseball speak, installment loans are a can of corn!

Short term installment loans can help you take care of any expense up to $1,500. It’s like having an astute baseball manager on your side. Sure, if the game is tight, you could burn out all of your ace relief pitchers to protect the lead, but what happens tomorrow when you need your stopper to close out the game and his arm is tired? Installment loans are the answer, in that they don’t force you to pay off everything at once. If something else comes up, you won’t be left without financial options. You’ll have bad credit installment loans warmed and waiting in the bullpen.

Yes, I said bad credit installment loans

Perhaps your record of making timely payments is imperfect. A few blowout games saddle you with the big “L?” That’s OK. Bad credit installment loans are available to get you out of your slump. Most lenders don’t perform credit checks for installment loans, your past record isn’t vital. Receive as much as $1,500 to knock those fastballs out of the park.

Plus, here’s a scouting report: after approval, your installment loan with no credit check can be directly deposited into your active checking account. After an approval process that can take as little as 10 minutes and a money distribution process that can take only two hours, you’ve got yourself a ballgame! If you need a pinch hitter for a budget emergency and want the luxury of paying it off over time, CLICK HERE to apply for installment loans.

The common complaint about payday loans from pseudo-reputable special interest organizations like the Center For Responsible Lending (CRL) is that it traps borrowers in a “cycle of debt” that leads toward inevitable bankruptcy. Clearly the subprime mortgage-backed organization did little actual research (their few “studies” are done largely in-house, reflecting complete bias), because numerous independent studies exist that show that their claim against the payday loan industry is without merit.

The most recent of such independent studies disproving the CRL’s claims is a study by Petru Stoianovici (from The Brattle Group) and Professor Michael Maloney of Clemson University. “Restrictions on Credit: A Public Policy Analysis of Payday Lending” proves that there is “no empirical evidence that payday lending leads to more bankruptcy filings; this finding casts doubt on the ‘cycle of debt’ argument against payday lending.” In addition to their own findings, Stoianovici and Maloney review a large sampling of current academic literature that supports their findings and further suggests that payday loan critics consistently operate in the realm of hearsay, rather than presenting supported arguments of any consequence.

Good customers and competition

Stoianovici and Maloney use state-level data collected between 1990 and 2006 in their study, with a particular focus on areas with faxless payday loan storefronts. From state to state, payday loan regulation varied greatly, from states like Delaware with no restrictions to those where the loans are banned completely (Georgia).

One common thread from state to state in their study is that lenders screened their applicants. Whether or not traditional credit reporting avenues were used, past financial behavior was taken into account. According to Skiba and Tobacman’s 2007 payday loan study, about 20 percent of applicants are rejected, and the rate of loan default is small (65 percent of what is found with credit cards, per Chessin’s 2005 study that the authors cite). Thus, the argument that lenders prey on helpless consumers is in doubt. These are people who can repay their debts. Borrowers who (according to the study authors) have relatively low probabilities to default are also harmed by payday loan restrictions, due to higher charges. In general, the authors find that restrictions harm the average loan customer.

Further, Stoianovici, Maloney and numerous researchers make the claim that restricting no fax payday loans makes it much more difficult for consumers to handle emergency expenses. Adair Morse argues in a 2007 study that the unnecessary restrictions against the loan product presents a barrier for consumers, in the sense that competition is eliminated in the short-term credit market. Prices for what remains are exceedingly high. Where payday loans remain, according to Morse, consumers benefit.

Easy to understand, easy to repay

Much has been said of regulating payday loans so that consumers can easily see and understand what they’re signing up for. However, these regulations are already being followed. It is as if impressionable government regulators take the CRL’s word without proof. If they looked at the industry, they’d see that consumer protections are already in place. Stoianovici and Maloney find the argument that payday loan terms are difficult to understand without merit; the loans are, in fact, very simple. Costs are listed up front, and if the borrower keeps up his end of the bargain to repay when the loan is due (typically after two weeks), all they repay is the principal balance and the typical $15 per $100 loaned. That’s it. If a “cycle of debt” culture were the norm, how could the supposedly resulting bankruptcies lead to payday loans being a profitable business?

As borrowers enter into payday loan contracts voluntarily and with full knowledge of how the loans work, it seems ridiculous to base an anti-loan argument on the grounds that people are victimized against their will or beyond their control. Paying interest and principal is agreed upon, and payday loan employees are more than willing to explain anything customers do not understand. Stoianovici, Maloney and others make a point of stating that people are not being forced into bankruptcy or any kind of financial distress by the loan product. If they are dishonest in their intentions of repaying a loan when it comes due, that is not the lender’s fault.

Profit and expense – too high?

But critics continue to make the bankruptcy connection. Regarding profitability, most critics claim that the faxless payday loan business is parasitic, that it depends upon hooking in the same “weak-willed” borrowers again and again. However, this is simply not the case. In multiple studies, such as the one by Flannery and Samolyk, payday loan store profitability depends on total volume, just as any other type of business would. Frequent borrowers are not a significant income source, which in turn suggests that rollovers are not as common as critics insist.

Regarding whether payday loans are too expensive, the authors point to studies like those by Huckstep. The loans are not too expensive. The high number of stores and significant operating costs, says Huckstep, are

relative to other lenders… payday loans are a product chosen mostly for convenience. Because of this, payday lenders compete in a local area and have a high density of stores, and keep those stores open beyond normal business hours (p. 210-1).

As demand for the product increases, the need to increase the number of stores and workers to meet the demand increases.  Stoianovici and Maloney find this to be consistent with collected data. For instance, Ace Cash Express “opened a store in Augusta, GA less than 1.8 miles away from another of its stores.” This was in response to the pre-ban need. Yet Georgia banned the loans anyway, despite the fact that doing so harms consumers. And if that doesn’t convince you, here’s another example for good measure.

Not as profitable as critics think

Stoianovici and Maloney continue on by citing more from Huckstep’s study. Specifically, he compares the profitability of payday loan stores versus large commercial lenders and the retail giant Starbucks (which has a similar business model to short-term lenders). Analyzing profit margin, Huckstep finds that payday lenders make less (7.63 percent) than both the commercial lenders (13.04 percent) and Starbucks (nine percent).

So how can it be argued that payday loans are predatory? According to Donald Morgan of the Federal Reserve, there is no logical argument that fits. Morgan does not find evidence that the presence of payday loan stores damages the financial well-being of consumers; default rates remain low. Stoianovici and Maloney clearly agree that this does not suggest that predatory lending is taking place.

Payday loans – the consumer’s choice

Authors Stoianovici and Maloney find no empirical evidence that payday loans lead to an increase in bankruptcy filings. The loans do not perpetuate a “cycle of debt.” Admittedly, despite full disclosure of terms and counseling available to customers before signing payday loan agreements, some will borrow beyond their means. This does result in higher finance charges, but this is an uncommon symptom of bad spending habits, not a factor that is inherent in the payday loan industry. It is clear that over-regulation that causes lenders to shut their doors not only puts people out of work, but harms the financial well-being of consumers. These consumers typically look to sources like checking overdraft to protect them when financial emergencies threaten their budget, yet it is unfortunate that this exceedingly profitable device is not in their best interests. Banks profit, consumers lose.

In 2007, the State of Oregon imposed a low payday loan rate cap of $10 per $100 borrowed (150 percent APR), and extended the previously common two-week payment period to a minimum of 31 days. Numerous sources have spoken out against this regulation, claiming it to be unfair and harmful to the economic well-being of Oregon consumers. There are academic studies that suggest that this is so,  including a December 2008 paper by Dartmouth College Economics professor Jonathan Zinman. In his study “Restricting Consumer Credit Access: Household Survey Evidence on Effects Around the Oregon Rate Cap,” Zinman examines what happens when access to payday loans is restricted, using survey data from payday loan customers. The scarcity of access was directly related to the new low rate making the payday loan business model unsupportable – some businesses closed their doors.

The rate cap mindset, Zinman believes, comes out of the school of thought that restricting credit rates prevents over-borrowing. Using neighboring Washington State as a control group sample to set off against the results of the Oregon survey – the states were “on similar economic trajectories at the time of the surveys: both states had experienced four consecutive years of employment growth, and both states forecasted a flattening of employment rates for the latter half of 2007″ (Oregon Office of Economic Analysis 2007; Washington Economic and Revenue Forecast Council 2007) – Zinman finds that borrowing decreased in Oregon relative to Washington (which did not have the same rate cap).

Moreover, payday loan customers turned to less desirable sources (most commonly, relying upon checking account overdraft or paying bills late) during times of short-term financial need. When a substitute is not sufficient, loss of checking account, criminal charges and utility shutoff are possible outcomes, to name a few of the most common.

Payday loan access: for good or for harm?

There is some question as to whether access to payday loans does borrowers more good than harm. Supporters point out that as the use of payday loans has grown, consumer financial welfare has improved; they typically borrow if there is a benefit. Others believe that unrestricted access leads to over-borrowing, justifying regulation of access. As of the time of Zinman’s study, at least 13 states had heavy restrictions on payday loan terms. New Hampshire and Ohio are the most recent states to restrict access, and others states like Virginia are attempting to follow suit. President-Elect Barack Obama seeks to cap no fax payday loan rates at 36 percent, nationwide.

Looking at the current base of  literature on the effects of access to payday loans, Zinman notes several studies that suggest that access to this short-term credit helps borrowers “smooth negative shocks” (Morse 2007; Wilson et al. 2008), contributes to consumers retaining their jobs (Karlan and Zinman forthcoming) and helps them better manage financial distress (Morgan and Strain 2008). Zinman’s findings concur with these cited authors’ work.

Understanding the payday loan market

Before the 2007 Oregon legislation, payday loans were commonly two-week loans. Customers typically took out $100 to $300 in return for a post-dated check, dated to coincide with the borrower’s next scheduled payday. The fee was commonly$15 per $100 loaned over the two-week period (effectively a 390 percent APR).

Who is doing the borrowing? The documentation Zinman references indicates people with steady employment and a checking account. Their credit histories may not be perfect, and household income generally falls below $50,000 but above $20,000. The mean age is 47 and over 60 percent of borrowers are female.

What are payday loans used for in Oregon?

“Bills, emergencies, food/groceries, and other debt service” were the most common answers in Zinman’s study. A mere six percent chose “shopping or entertainment.” If a payday loan had not been available, 70 percent claimed they “didn’t know” what alternative they would have used during their emergency. Interestingly, only eight percent stated “bank” or “credit union” and 15 percent said they would go to a pawn shop or use a credit card or car title loan.

Cap the payday loan, cap financial well-being

Those who support the use of payday loans argue that they help borrowers avoid missed work days (lost wages). Reducing payday loan access in Oregon, Zinman found, hindered productive spending that was directly related to successful job retention or job search.

Logically, he finds this to be consistent with consumer financial well-being. Broken down, that translates to survey data reporting

“low levels of recent or expected deterioration in financial condition… fewer than 20 percent say that their situation has been getting worse, and fewer than 10 percent expect their situation to get worse in the future.”

Oregon has hurt its citizens; other states should take notice

Zinman found that as the cap restricted credit opportunities, financial condition of borrowers suffered. Oregon’s policy change decreased short-term borrowing relative to the Washington control group, and the disenfranchised borrowers typically resorted to less desirable, more expensive alternatives like checking overdraft. Critics such as those in the video below who continue to use the behavioral model as a reason to cap or ban the payday loan should take a moment to consider the hard data. Dartmouth College Professor Zinman has shown that the regulation has been harmful to the people, which in turn does not bode well for the state economy, particularly during the serious recession America currently faces. Turning away from the evidence is harmful and irresponsible to the people.

Try positive thinking.

Make yourself believe that the recession is not going to hit you, and then see if it works; that you are not going to be hit.

Caution with money is prudent at these times

Of course, caution is prudent at times when salaries are plummeting and unemployment is soaring but you may remain untouched if you do not overdo things. Do not give way to sentiments when spending your money, instead concentrate on expenses that are absolutely necessary.  Do the best you can to get out of financial tangles, one tangle at a time.

Easy Option

Opting for payday loans can help. Get in front of your computer or get on the phone and apply for the loan at Personal money Store.  If you qualify, you can get money transferred to your bank the very same day.  There are no hidden charges either.  It will be what is agreed and signed upon at the time of applying for the loan. With these types of loans, the lenders usually do not bother with the credit records or document issues. It is a very short term loan, so there is no time to waste over such rigmaroles. This can also help you if you are a very private sort of person and are not comfortable with anyone prying into your privacy–even into your financial records for your own benefit. Look at the convenience of the loan.  If approved, it will be credited to your bank account, usually in a single day, all the while sitting at home. Make sure that you make use of the money in the right way, only to solve that particular issue for which it was meant and be sure that you will have the funds to pay it back.

Do all you can to keep your job

Do all you can to keep your job.  Even if things are terrible all around you, you need not lose hope as long as you can hold on to your job, because then you will have the option of payday loans to fall back on whenever you are in need of money fast and easy. Obviously be cautious.  Recession is hitting people hard.  But if payday loans can save you from losing your home, avoid a late fee on your rent or overdraft fees or pay for something important, go ahead and do what has to be done.

The Federal Reserve Board, Office of Thrift Supervision and National Credit Union Association are at it again, and payday loans are looking better than ever when compared with having to deal with overdraft charges on your checking account.

To recap for those of you who aren’t familiar with the service, “overdraft protection” is when a bank or credit union charges a fee to a customer’s account when they have insufficient or unavailable funds in the account to cover a pending transaction. Not only can this service be very expensive, but frequently customers don’t have the clear option to opt-in or opt-out of the service.

Regarding overdraft services, the Board is proposing two alternative approaches - an opt-out and an opt-in - where the bank must give consumers notice of fees associated with paying overdrafts that occur at ATMs or point of sale debit transactions. Thankfully, there is no such difficulty or near deception with payday loans.

Here’s the opt-out the Fed would like to see

This plan would prohibit banks from charging a consumer’s account for overdraft if the customer is given notice and reasonable opportunity to opt out and does so. This doesn’t free a bank  from paying overdraft, but it does limit or completely eliminate their ability to charge customers for it.

Per the Board, examples of “reasonable opportunity” may include:

• A 30-day period after receiving notice of the right to opt out for the consumer to call or otherwise contact the financial institution;
• A notice signed as a necessary step in account opening of the choice to opt out;

And their opt-in approach

Here, banks are prohibited from charging overdraft fees unless the consumer is provided with notice explaining the institutions overdraft service for such transactions and is given a reasonable opportunity to affirmatively consent or opt-in to the service.  If the consumer opts-in, the financial institution must provide written confirmation of this consent.

Model Forms

As seen in the above links, the Board has produced model forms that financial institutions may provide to consumers in order to attempt to obtain consent regarding overdraft services. These forms reflect a fee for the overdraft service but do not disclose that fee as an annualized percentage rate.

Why is the Board not requiring that APR be listed in bank literature about overdraft services? Perhaps because it would be too embarrassing for banks? Organizations that represent the payday loans industry like the Online Lenders’ Alliance (OLA) attempt to convince the board that if APRs must be published for payday loans per the Truth in Lending Act, banks must follow suit with what amounts to overdraft loans.

Related Articles

• The cost of banking
• Sleazy Bankers, You’ve Met Your Match

An overdraft primer

Historically, if a consumer attempted a transaction that would overdraw his or her checking account, their bank used its discretion to determine whether to pay the overdraft. If paid, the bank charged a significant fee for the service. In recent years, many banks and credit unions have automated the overdraft process. Coverage varies by institution; consumers who meet criteria are automatically enrolled.

In the past, overdrafts generally covered only check transactions. Today, ATM withdrawals, automated clearinghouse (ACH) transactions, point-of-sale debit card transactions, preauthorized automatic debits, telephone fund transfers and online banking transactions are also covered. Institutions typically charge a flat fee for each overdraft, regardless of the amount of the overdraft. A daily fee also may apply for each day the account remains overdrawn. This simply isn’t the case with an entirely straightforward payday loans.

Federal Reserve Board, OTS and NCUA say “no”

In a May 2008 proposal, the Board, Office of Thrift Supervision and National Credit Union Association proposed to adopt rules prohibiting unfair overdraft practices. One provision would prohibit consumers from being charged for overdraft protection unless they’re given notice and a reasonable opportunity to opt out of the service, and the consumer does not opt out.

The agencies also proposed to prohibit assessing an overdraft fee where the overdraft would not have occurred but for a hold placed on funds that exceeds the actual purchase or transaction amount.

New rules aren’t in place yet, but give it time

All banks will eventually be required to provide its customers with the right to opt out of the overdraft protection as incurred from ATM withdrawals and one-time debit card transactions. The Board is also proposing that banks obtain a consumer’s consent (opt-in) before overdraft protection could go into effect for ATM withdrawals in the first place.

Balance disclosure and transaction clearing

The fashion in which banks and credit unions disclose balance is also under investigation by the agencies. They noted that consumers could be misled by balance disclosures that include additional funds that a bank may provide to cover an overdraft.

Transaction clearing practices will also have to be made entirely more clear to consumers, as financial institutions often processed transactions not in the order that they occur, but “stack” them so that larger ones will hit first, even if they occur much later than smaller deductions. This creates a situation where customers are paying overdraft fees for even the smallest transactions.

If you’re short, DON’T overdraft

No fax payday loans are easy to understand, upfront about terms and fees and less expensive than overdraft protection. During a busy holiday shopping season, using overdraft protection like a safety net can be dangerous for your budget indeed. Be smart, know your budget and look to payday loans to fill your budget holes with just enough to get you through until your next payday.

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• The cost of banking
• U.S. Seeks New Curbs on Credit-Card Practices
• Are Reward Checking Accounts Worth It?

Yet simple, fact-based (rather than anecdotal) evidence tends to cut to the heart of the matter. Recent studies by Answers, etc., a company that has developed check-cashing and payday advance software for the consumer financial services industry since 1989, presents clear information about payday loans. Their research over the past few years indicate that payday loan costs, the standard customer profile and how the consumer loan products are regulated fall far from the media’s unstudied portrayal.

What do payday loans cost in relation to typical alternatives?

Answer, Etc’s findings indicate that on average, payday loan fees are 2.3 times less expensive than checking overdraft charges. An even greater discrepancy exists when late charges and utility reconnect fees are considered. Banks and credit unions are fond of citing the near 400 percent APR that accompanies a no fax payday loan, but this is misleading. First of all, no payday loan is a 12-month loan; typically they are to be repaid in two weeks. Furthermore, payday loan opponents deliberately neglect to mention that the APR game definitely doesn’t play favorably upon their argument, as you’ll see. These are average examples; frequently the other numbers can make payday loans look like even more of a bargain:

• $100 payday advance – $15 fee, 391 percent APR
• $100 checking overdraft protection – $30 fee, 782 percent APR
• $100 credit card bill with late fee – $29 fee, 756 percent APR
• $100 bill, fee for late/disconnected utility bill – $50 fee, 1,304 percent APR
• $100 bounced check/NSF – $25 fee, 652 percent APR

Interestingly, banks and credit unions are exempted from disclosing their fees for overdraft protection and NSF charges as an APR. Perhaps the above information casts a harsh light on the reason why.

How much do THEIR fees cost?

• Consumers will pay $4.2 billion in ATM service charges in 2006 to withdraw their own money (Bankrate.com Fall 2006 Survey)
• Consumers pay an estimated $22 billion in NSF fees to banks and credit unions (”Contrasting Payday Loans to Bounced Check Fees,” Consumer Credit Research Foundation, Thomas E. Lehman, Ph.D., 2005)
• Banks collect an estimated $10.3 billion annually for overdraft protection services (”Overdraft Fees Can Overwhelm,” Washington Post, June 26, 2005)
• In 2000, consumers paid credit card interest of more than $87 billion (Public Interest Research Group, 2002)
• An estimated $57 billion in late bill payment fees were collected by businesses in 2003, more than 140 percent of the total estimated payday lending volume in the United States (”Sizing NSF-Related Fees,” BAI Banking Strategies Magazine, Bill Stoneman, January-February, 2005)
• Credit card late fee penalties totaled over $11 billion in 2005 (CreditCards.com, November 2006)

Payday loans are regulated to best serve consumers

The “cycle of debt” that the media attributes to payday loans is quite often an impossibility, as few or no loan rollovers are typically allowed. Here are recent restrictions states place on the industry. Any that have changed have only become more strict. They remain among the lowest rates in the country for consumer loans:

• Arizona: 15 percent max fee; $500 max loan; three rollovers
• California 15 percent max fee; $300 max loan; no rollovers
• Colorado: 20 percent max fee on first $300, 7.5 percent on next $200; $500 max loan; one rollover
• Kansas: 15 percent max fee; $500 max loan; no rollovers
• Missouri: 75 percent of loan amount Max Fee; $500 max loan; Up to 6 rollovers;
• Nebraska: 15% Max Fee; $500 max loan; No rollovers;
• Nevada: No Limit; 25% of gross income max loan; None beyond 60 days for original due date;
• Oklahoma: 15% Max Fee up to $300, 10% above $300; $500 max loan, No rollovers
• Oregon: No Limit; Subject to net income max loan; 3 rollovers
• Washington: 15% on the first $500, 10% to $700 max fee; $700 max loan loaned; No rollover.

Portrait of a payday loan customer

• The average payday advance customers earn $40,000 annually
• 68 percent are under 45 years old; only four percent are over 65, compared to 20 percent of the population
• 94 percent have a high school diploma or better, while 58 percent have some college and 19 percent have a college degree
• 41 percent percent own their own homes
• 85 percent have access to other credit, including savings accounts
• 77 percent of the customers were satisfied with their experience
• 92 percent of customers think payday lenders offer a valuable service
• 90 percent of customer are satisfied with their understanding of the terms and conditions of the loan
• 100% have steady incomes and active checking accounts, both of which are required to receive payday loans

(Sources: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence; “Payday Advance Credit in America: An Analysis of Customer Demand,” April 2001; Cypress Research Group, “Payday Loan Customer Satisfaction Study,” April 2004)

Payday loans exist because the public supports them

Regardless of media claims, payday loans are a viable form of short-term support when consumers face financial shortfall. Consumers find them to be consistently fast, convenient and discreet. When the simple, most direct data is studied as Answers, etc. has done, the haze of media bias is cleared and real answers become apparent.

Even though APR is not entirely compatible with payday loans (which are often two-week loans, making full-year interest rates immaterial), lets assume for the sake of argument that 391 percent is accurate.

Next, let’s assume that consumers facing a small financial crisis will rely upon a product like checking overdraft protection once in a great while if their balance is low and an unavoidable expense threatens to overdraw their account. Overdraft protection of this nature is quite common and readily available, in much the same way that no fax payday loans are available for short-term cash problems.

Is Overdraft Protection a More Cost Effective Option Than Payday Loans?

A November 2008 study by the Federal Deposit Insurance Corporation (FDIC) answers that question with a resounding NO. In fact, their study of 1,171 FDIC-supervised banks presents hard data that proves that their overdraft programs are prevalent, often deceptive, generate tremendous revenue and exploitative. Here are some highlights:

Overdraft is prevalent…

• 86 percent offer at least one type of overdraft program

…deceptive…

• 75 percent automatically enroll customers without asking; customers must voluntarily opt out. In some cases, the option to opt out isn’t even available
• 81 percent permitted overdrafts at ATMs and points of sale (POS), and most informed customers of the overdraft only after it occurred (88.8 percent for POS and debit transactions, 70.7 percent for ATMs)

…generates tremendous revenue…

• Median overdraft fee is $27; a $27 fee for a single $60 instance, repaid in two weeks, translates into a 1,173 percent APR
• Banks earned $1.97 billion in NSF fees in 2006, which was 74 percent of all service charges and six percent of net operating revenue
• Banks with overdraft programs had higher NSF-related fee income than other banks
• Customers with 5 or more NSF transactions over the 12-month period of the survey accounted for 93.4 percent of total NSF fees reported
• Customers with up to four NSF charges paid $64 per year on average; those with 20 or more paid $1,610

…and exploits customers

• Approximately one quarter of the banks with automated overdraft protection also assessed additional fees on top of the NSFs for retaining a negative balance
• Accounts held by customers in low-income areas (media household income below $30,000) were more likely to incur overdraft charges than those in higher income areas; more than 38 percent of low-income accounts had at least one NSF fee, compared with 22 percent of upper-income accounts
• Assuming the median $27 overdraft fee, a customer paying a $20 POS/debit overdraft in two weeks would pay an APR of 3,520 percent; a $60 ATM overdraft would be 1,173 percent; a $66 checking overdraft would be 1,067 percent
• If overdraft fees are repaid more quickly, the resulting APR is actually higher
• Accounts held by customers 18 to 25 are much more likely to incur NSF activity (46.4 percent)

Before a consumer relies upon overdraft protection to cover themselves in the event of a short-term financial emergency that can drain their account, they should consider the facts. The expense of this service alone is prohibitive, and banks don’t make it easy to get rid of (or even get rid of in some cases). Payday loans are a safer, less expensive, more convenient option for consumers who wish to escape excessive debt rather than create it.

Ever needed a payday loan to cover overdraft fees or ATM fees that your bank has charged you? If you haven’t, you just might be looking for one sooner than you think. Because of economic turmoil, banks are forecasting that overdraft fees and ATM fees will continue to rise above the average of $34.65 and $1.98, to try and cover losses over bad mortgage loans and poor investments. So what does this mean for you? Hopefully better budgeting and planning.

Paying Interest to Access Your Money

As convenient as an ATM machine is, you should really pick and choose which ones you use. Most banks charge a fee for using competitors’ ATM machines and sometimes that fee can be up to $2.50. If you only take out $20, you’re paying 12.5% interest on your own money. It’s kind of ridiculous, huh?  A payday loan that is paid back on the very next payday has less interest then that. The best way to avoid these fees is to use your bank’s ATM machine or find out which ATM machines are in your bank’s network. Planning ahead can make a world of difference on your bank statement.

Pesky Overdraft Fees

We have all over drafted our accounts for extra money for something at one point or another; it happens. My personal favorite though is when I purchase something at the grocery store after my paycheck has been deposited into my account and because deposits get posted after debits for the day, I get charged an overdraft fee even though the money was in my account before I made the purchase. Banks look for any way possible to charge you a fee to help boost their bottom dollar. What’s even worse is some banks charge an overdraft fee for every purchase over your limit, no matter how small, and then charge you for every day that your account is in the negative.

Where Does It End?

It doesn’t end, plain and simple. Banks will keep raising fees no matter what. The real question is, how much will they rise? Even if your bank is not raising its overdraft fees, you should really look into what fees they are raising. Banks are tacking on fees to savings accounts for too much activity in the account or if you keep a balance over a certain amount. It kind of defeats the purpose of saving emergency funds if you’re going to get charged to do so. Other fees rising include service fees, overdraft protection fees, and bounced check fees for those accounts that do not have overdraft protection. The best thing you can do is get a list of all the fees your bank charges and then ask how each of the fees applies to your account.

Knowing Is Half the Battle

Being responsible about your checking and savings account is the best advice I can give you. Make a budget and pay attention to accounts by balancing your checkbook and watching activity online. Knowing what’s going on with your money at all times is half of the battle with bank fees. Times do get rough though and accidents are bound to happen. If you find yourself in a crunch with the bank, there is always a payday loan around to bail you out.

Not only were the banks bailed out with your tax dollars via the federal bailout bill, but now the banks are bolstering profits by increasing overdraft fees on your bank accounts. Before you get surprised with hefty overdraft charges, know that a solution to avoiding excess charges may be found in a helpful payday loans or credit card cash advance.

Your bank has raised its fees on you again!

What are overdraft fees?

Overdraft fees are the result of a customer over drafting their account. Over drafting an account happens when more is charged to an account then there are funds left in the account to cover. What happens then is the bank covers the deficient portion of the transaction and charges you a per item fee of up to $38, which is more than most payday loans.

The crux of the issue is that if the account gets overdrawn, each check thereafter will accrue additional penalty charges, usually on an escalating scale. So if you wrote 3 checks for items fewer than five dollars for example, it would cost you the written amount of the checks plus the overdraft fees. Therefore $15 dollar worth of transactions could cost you over a hundred dollars.

Unfortunately by the time you find out about the discrepancy in your account balance, you may have already written one if not several checks that may soon be hitting your bank account thus racking up additional fees.
In emergency situations like this one you will want to bring your account back into good standing as soon as possible to avoid the pileup of overdraft fees from accruing. Unfortunately when it comes to money, your next paycheck may still be several days out which means you need to seek a more immediate solution.

Speed is of the essence, so you must find a solution which will both, give you the allotted fund you need and give them to you quickly..

Borrow Money From A Friend or Family Member

If you have family members or a friend who can give you a quick cash advance until your next payday arrives, this may be your fastest option. If they cannot provide you the necessary funds to bring your account back into good standing then you will have to continue your search

Credit Card Check

On occasion your credit card providers will send you checks for purchases that you can either write for the purchase of goods and services directly, or that you can write out to yourself to deposit funds in your personal bank account. Credit card checks will have fees attached to them that will be either a set minimum fee or a percentage of the written check amount. These fees will be much cheaper than the overdraft fees you would likely be facing.

Credit Card Cash Advance

Convenient...but they can be trouble

Payday Loans

One of the more popular services for obtaining cash fast is through payday loans. Payday loans are short term loans usually no longer than two weeks in term and require very little criteria for the approval process. Funds can be obtained within two hours and in amounts of up to $1500 dollars.
Which ever route you choose, just be sure to do it as quick as possible to avoid any unnecessary hardship caused by overdraft charges.

Some Lloyds TSB customers mistakenly receive letters claiming they had gone overdrawn and would be charged.

Your Payday Loans News Source Quoted With Edits From: Lloyds TSB admits overdraft error (BBC News)

“Technical Error” concerns

An overdraft fee is the last thing that will help repair credit. Fortunately, for Lloyds TSB customers, the overdraft notices they received in the mail were sent out accidentally due to a “technical error.” I know if I were a customer, an overdraft notice would cause many concerns for me. First of all, before discovering that it was an error, I would be outraged that I did something to overdraft my account. Secondly, I would have less faith in my bank, and it’s important to have trust in your bank when the world economy is struggling like it is. I don’t want to have to worry about my bank going under or needing payday loans to correct overdraft fee mistakes.

Will Payday Loans help You Repair Your Credit?

Give Them a Break

On the other hand, the banks could probably use a little forgiveness. I can’t tell you how many times my computer at home or work malfunctions, so it’s not inconceivable that bank computers can do the same. The information banks possess is much more important than what I’ve got on my computer, but it’s understandable that banks are going to face computer problems every once in awhile.

Fair or Unfair?

Back to the issue on hand, Lloyds TSB is one bank among many that is trying to decide whether or not overdraft fees are fair. There are individuals who are careless with their money and recklessly spend money they don’t have, which overdraws their account. However, there are also instances when a person can unknowingly overdraft their account, which won’t help repair credit. Overdraft fees aren’t fair, but at the same time, if there were no penalties people would constantly overdraft their account.

You could be in for higher fees if you don’t keep an eye on your checking account.

Your Payday Loans News Source Quoted With Edits From: Survey finds ATM, overdraft fees rise again (MSNBC)

Looks like the sky is the limit with overdraft fees

Rising Overdraft fees, Do you need payday loans?

Overdraft fees rise again as consumers fail to keep an eye on their checking accounts. Are more payday loans needed?

People are outraged at the continual rising of bank overdraft fees which are charged to an individual who pays out more from their account then they have sufficient funds left to cover.

People are tired of the rising overdraft fees claiming that they are a ploy to make more money off the customers mistakes. Banks however, argue that they are simply trying to motivate customers to keep a more careful eye on there finances.

Who’s at fault?

Outraged customers are finding it hard to blame the banks as predatory being that they were made aware of these fees when signing on with the bank. A contractual relationship is hard thing to overcome.

Ultimately the irresponsible financial management on the customers behalf is what seems to be the crux of the issue. It is possible that middle ground may be established to help settle the conflict but legally that looks like the banks call as they are simply following the terms of the mutually agreed upon contract.

Hope for over spenders

If you are a habitual over spender, you may see some relief in the future. Banks will eventually regulate themselves as they compete against each other to offer the best services to their clients. As more consumers get fed up with overdraft fees, expect to see banks start dropping their fees to compete for market share.

George Osborne has rejected Gordon Brown’s claim that Britain’s record borrowing figures are the result of a careful strategy to boost economic growth.

Your Quick Payday Loans News Source Quoted With Edits From: Brown is a man with an overdraft, not a plan

Will Borrowing Money Save our Economy?

Gordon Brown, the Prime Minister of Britain was forced to defend his policy for the recent economic downturn.

Brown believes that through increased borrowing, relief will be given to the economy. He specifically stated that it would be:

“The investment that is necessary for the future will continue”

Quick Payday Loans can help your financial troubles

It’s an interesting proposition and one which many have scoffed at. But does the Prime Minister have a point?

Would increased borrowing really alleviate the economy? I believe it would, and at this point I can’t think of a better idea. After all the more money that is borrowed, the more is spent. The more money that is spent means that more commerce is taking place. And commerce is what makes the globe go round.

But…. and it’s a big but. There is the potential of just furthering the slump as well. If the relief is to prolonged in it’s arrival, conditions will only worsen.

People will need to barrow and spend for this ideology to work. In order to do so, people need to have cheap access to money, like quick payday loans. This would come in the form of lower interest rates would encourage individuals to borrow.

Tis the Season to Spend Money!

Here in American, we may see this ideology play out naturally through the Christmas holiday season. The spending habits of millions of Americans increase at this time each year pouring millions into the economy. Could this holiday season be the silver bullet for this countries economic troubles. We shall soon see!

PARKSLEY — The Accomack Board of Supervisors will hold a special session Wednesday to grapple with finances after twin revelations that the county finished Fiscal Year 2008 nearly $500,000 over budget and that the county had a $115,000 overdraft at the bank last week.

Your Payday Cash Advance Loans News Source Quoted With Edits From: Tight cash conditions vex county, supervisors (Eastern Shore News)

Carol Vaughn of Salisbury, Maryland’s The Daily Times sheds light on a fiscal reality that haunts not only individual consumers during America’s “Great Recession,” but governments as well.

I’m talking OVERDRAFT!

Accomack County had a very difficult fiscal year in 2008. They finished $500,000 over budget, and just a few weeks ago, the country had a bank overdraft of $115,000.

That’s a serious banking penalty. It’s no wonder Accomack County Administrator Steve Miner said that “significantly more work is needed on the budget.”

Accusations leveled against Finance Director Reed Ennis include that he had full knowledge of what was coming for Accomack County, yet he “painted a pretty picture” based upon pie-in-the-sky predictions of revenue increases that never came true.

What was Ennis’s response?

Accomack County Court House

He asked the county Board of Supervisors for the authority to borrow $800,000 – (that’s a hefty set of payday cash advance loans if you ask me.) but then he changed his mind. Good, sound political thinking, eh?

We would use every resource we have within the county before we would use the line of credit, including transferring money from a $2.8 million reserve set aside for landfill closure. That fund now stands at $1.3 million after recent transfers.

As “Joe Sixpack” consumers, we may not be able to relate to those kinds of numbers, but Ennis’s eventual thinking here is sound. Use the resources you have first when a financial emergency occurs. If you find that those resources run dry, payday cash advance loansmay be the attractive option you’re looking for.

The city of Florala’s most recent audit has uncovered several serious issues in the way the city handles its money — one of which cost the city nearly $8,000 in overdraft fees.

Quoted With Edits From: The Andalusia Star-News (The Andalusia Star-News)

Florala needs much more than installment loans now…

Andalusia, Alabama’s own The Andalusia Star-News brings to light some serious accounting problems on the part of city government that taxpayers ultimately end up paying for.

They always do, don’t they?

Ken Odom

Independent accountant Ken Odom of Rabren, Odom, Pierce & Hayes, P.C. gave the city an “unqualified report” on the recent audit that discovered the careless discrepancies. He even went so far as to say that the findings from the 2006-07 fiscal year audit showed Florala to be in “sound financial shape.” I guess no installment loans were needed that year, huh.

Here’s a lucky seven from the complete findings uncovered during the audit:

• Bank statements were, in some instances, accumulated for several months before being reconciled to the appropriate general ledger accounts. It was noted here auditors found insufficient fund charges totaling $7,500 for the year to the city’s general fund cash account.
• Checks are not being recorded in the check register on a timely basis.
• A reconciliation of accounts receivable from the general ledger to the accounts receivable detailed ledger should be prepared to check that the recording of transactions are accurate and proper and that any adjustments to or write-offs of accounts receivable have been approved.
• Accounts payable were understated due to lack of reconciliation.
• Grant revenues and expenditures were not recorded at all, recorded in the wrong fund or intermingled with other accounts in the ledger.
• In some instances, the city paid for both the gas and mileage to the employee for city travel.
• Purchases and disposals of fixed assets were not recorded properly.

Let this be a lesson to you. Make a budget, stick to it and keep track of all transactions in a timely manner. Then you’ll know if you really need installment loans when you’re in a pickle.