Recently, there is a lot of talk about payday loans and although many people may not know exactly what these loans are, it is understandably that consumers are seeking for short term loans whether payday, cash advance or fast loans. It seems that it is not only the victimized and accused payday lenders who are offering high-cost loans to consumers but big lending institutions or banks seem to be offering the same products. This means that the consumer is highly subjected to costly lending services.
As the Federal cracks whip on the Native American tribal lands payday lenders, on the other side of the coin, things are not working on well as desired. Banks are actually offering these types of loans and they are branded in different names such as direct deposit advance, checking account advance, ready advance, early access, fast loans, and easy advance. The Center for Responsible Lending (CRL) produced a report analyzing the big banks’ payday loans.
The report was released in July 2011 and it analyzed data obtained for the previous year 2010. From the findings, it was revealed that payday loans offered by banks under different names attracted higher interest rates similar to those of traditional payday lenders. The report showed that bank-based payday loans carried triple-digit interest rates and also trapped consumers in circles of long term debts.
From the findings, it was estimated that bank-based payday loans carried annual percentage rates of approximately 225 to 300 percent compared to the average traditional payday loans APRs of about 400 percent. What this means is that the federal has to examine the nature in which banks are offering these kinds of loans and whether they should be put to an end or not. There has been scrutiny on payday lenders but from this report, it is certain that it is not only the traditional payday lenders who are exploiting the underserved consumer but also big banks have joined the market.
One of the benefits of payday loans is that they can help consumers meet emergency financial needs such as repair of cars, paying of college fees, and meeting medical expenses. However, these loans are not designed for repetitive borrowing but based on the kind of consumer who takes these loans, it is certain that they are indirectly long term loans.
Repeated payday loans result to total annual fees of close to $3.5 billion. This is money which is taken from the already financially entangled consumer who is trying to make ends meet. However, because there are no other options, the consumers are willing to part with these fees. One thing that has been noted is that payday loan borrowers are likely to become repeat customers. They will borrow numerous cash advance loans in one year and this means that they end up in circles of borrowing, which results to long term payday lending trend.
The best way to address the aspect of short term lending is to educate consumers on the way in which they can manage their finances and save for emergency financial needs. Most of the consumers are compelled to take cash advance because they have no savings to cater for financial emergences