When the Banks Turn Payday Loan Lender

Why is your regular street corner flashing-light-signage payday loan lender such an unacceptable site? Perhaps it's because they charge a minimum of 300% in interest. Perhaps it's because they do their best to make sure that you keep their loan for as long as you want and end up debt ridden and in poverty. Where do they get off charging people 300% or 350%? If you thought that your credit card charged you outrageous APR's, what you say about a number like this that's 10 times as much? Well, the banks and credit unions have been watching the whole payday loan thing with interest. They've been telling themselves, "You know what, we aren't really fine upstanding individuals ourselves – why don't we have a piece of that action?". And now they have actually made a move to get into the payday loans business.

In most states, there are laws in place that limit the payday loan lender businesses in what they can charge you. They can't charge you more than 35% in most states. The payday lenders still continue to charge you anything they want because there is not much enforcing going on. But it'll catch up with them one day. And so, the banks are rushing in to fill the void. They feel that if they charge you a "mere" 250%, it will bring them good publicity for being such honest lenders. And where else could they get that kind of return on their loans? But wait a minute – if the law caps interest rates charged at 35%, how are the banks able to charge 250%? Oh, there's a little caveat to that law – it applies only to smalltime lenders and not to the banks.

And so, when you treat your bank like a payday loan lender, you are a bit grateful. Why, the banks, (bless their hearts) are being so reasonable, you'll think. It would actually be more expensive if you got overdraft service from the bank – where it would cost you $35 if you went overboard by a mere dollar.

This is what happens when the government puts out a new law to try to protect consumers from the banks. They go and find a new way to make money.

Nevertheless, if you want to take advantage of such a payday loan scheme with the bank, how do you go about it? Well, you need to have a job or Social Security where your money is set up to be directly deposited in your account. They give you the money in advance when you apply for a loan. And when your paycheck arrives, the money’s taken out automatically and your loan is repaid.

Since this is kind of a new thing, there isn't much regulation in place. It looks like there's a fresh round of banking abuses coming right up.