“Evil” Fast Payday loans can be a quick, smart way to avoid huge bank fees in an emergency.
The Denver Post had a surprising article defending payday loans, that suggested we not be so fast to harshly judge those no credit check, no teletrack, instant payday loans you see advertised everywhere. There’s been for a few years now a growing mood of outrage towards payday loan lenders- they are considered slimy and evil, unlike good, respectable banks. They are even either illegal or impossible in 13 states (impossible due to laws imposing interest caps, which makes them unprofitable.) But in Terry Kibbe’s article yesterday (March 13, 2008), Without payday loans, some consumers pay more bank fees, she shows that fast emergency payday loans can help consumers actually AVOID huge and often crippling bank loan fees.
When payday loans disappeared in Georgia, consumers actually paid higher costs in overdraft bank charges and late fees. Economist Donald Morgan (Federal Reserve Bank of New York) noted that when payday lenders were forced to shut down in Georgia, it was the credit unions that reaped big profits. Morgan recently told Forbes Magazine that, “interest rates on overdrafts charged by credit unions and banks can exceed 2,000%, dwarfing the high interest rates on payday loans.”
I actually worked at a major bank for a while, and fielded calls all day from people begging me to reverse bank fees. This bank charged $35 for EACH overdrawn transaction, and each night would process the most expensive transaction first.  In other words, if someone made 5 $5 purchases with their bank debit card in the morning, and then that evening bought $200 in groceries, that totals $225. If they only had $204 in their bank account, their largest item would go thru, resulting in a $35 fee for EACH of those 5 $5 purchases in the morning. Plus one overdrawn fee of $30 for going overdrawn. This would result in the consumer having over $200 in fees for being $21 short! This isn’t just a hypothetical. I saw it every single day. And listened to these consumers begging me to reverse the charges. For many of them, taking the time to research and then choose a fast payday loan lender would have been a wiser choice.
And worse, many bank customers I spoke with had direct deposit into their bank account from their employess, where the moment their $800 Mcpaycheck was transferred to their account, the bank would take out $600 in late fees from the previous 2 weeks, leaving them with $200, practically ensuring the cycle would continue. All major banks have a black list, so that if someone tries to hop to another bank to break out of this downward spiral, they will be declined.
I was actually fired from this bank for being too much of a Robin Hood. Reversing too many late fees from tough cases of people who had very little hope.
Of course this spiral of late fees extends past bank charges and into credit cards etc. And since credit cards are essential these days for purchasing items where cash isn’t accepted (like airline tickets online, etc.) many of those with bad credit have a bad credit credit card, which often charge even higher interest, late fees, over limit fees because customers are potentially, according to their credit histories, a greater risk.
In light of that experience, I have to agree. Fast emergency payday loans- the kind so many of us feel angry about for taking advantage of people in financial difficulties- they actually can be the most intelligent alternative compared with the huge fees banks now charge. According to the payday loan article:
A separate report in the Norfolk, Virginia metro area revealed that the majority of payday borrowers are middle income, educated consumers who are using the bridge loans in a responsible way.
This was interesting to me because the people who called me- most of them had Mcjobs and might not have had the foresight to actually choose to get a quick payday loan instead of reap such outlandish banking fees.
So if you reach a point where you are going to have to face those huge bank fees, you might find a fast payday loan company online or in your town. Make sure they are reputable, and find out exactly what ALL the fees are and the exact terms of the loan. Make sure you understand it, and add it up. Then call your bank, or look online and make sure you understand ALL the fees they will charge. Compare and make the smartest decision. Payday loan lenders offer comparatively fast cash advance loans with no credit check, no teletrack and no telecheck. Depending on the day and time you apply for a cash advance , your payday loan can appear in your bank account the next business day. All that means is it is often quick and easy for you to apply for and then receive a short term high interest personal loan if you can show evidence you have a steady job. But paying BACK the loan isn’t always so quick and easy. So make sure you have a real plan to do that, and a longer term plan to avoid these situations in the future. No matter which way you go, the fees DO add up. There are many sites that have some trustworthy consumer info on payday loans and other consumer loan info,  including Smart Money Daily Payday Loans for the U.S.
What all the experts point to is 1. read the fine print on the cash advance loan, making sure you understand what you are agreeing to, and 2. make sure you have a definite plan to pay back the payday loan, to prevent a spiralling cycle of increased debt.
Page topic: Judging payday loan lenders? Not so fast: Payday loans can be a wiser alternative than terrible bank fees, in spite of the growing outrage and increased laws towards payday cash advance companies.
YES YES AND YES! I have bounced checks, and overdrawn my debit card and been charged outrageous amounts by my bank. Payday loan stores have helped me get out of this “cycle of debt”. My credit score is finally climbing and I can really say that I have a true feeling of accomplishment. Thank you payday lenders for providing a great service. Now, I understand that some people are misusing this product and hurting themselves, but they are ONLY hurting themselves. It is not a hard thing to understand, if you won’t be able to pay back the loan in two weeks, don’t get one. I usually get my loans on the first of the month, so that it is taken from my check in the middle of the month. All my bills are due on or around the first of the month, so I do not want to have less money for those times. It is just smart borrowing. We need to be held accountable for our actions.
Finally someone who knows how Banks really work. Thanks for sharing.
Tired of being ripped off by the establishment.
Loan Sharks and Predatory Lenders have been used to describe Pay Day lenders because of the 3 or 400% APR charged on a $100.00 loan, for a fee of $15.00.
BUT what about a
15 day loan with an APR of 42,583.33%
Thank you Bank of America.
How can this be, you ask. Let me explain. My son has an account with Bank of America and went to a merchant to purchase an item using his debit card, for $3.50, but only had $1.50 in his account.
So as a convenience the bank allowed the debit card transaction to be approved, creating an overdraft of $2.00 for a small (ya right) service fee of $35.00.
My son did not ask for this service, in fact when we opened his account, I Specifically asked the bank employee NOT to allow this to ever happen. I would rather have my son turned down for not being able to manage his money, than to have the Bank pay for his miscalculation and gouge him with a fee that EXCEEDS any pay day loan cost either in Dollars or APR.
In 2006, consumers will also spend $4.2 billion in ATM service charges to withdraw their own money. They will pay an estimated $22 billion in NSF fees to banks and credit unions and banks will collect an estimated $10.3 billion for overdraft protection services.
Businesses will charge an estimated $57 billion in late bill payment fees (more than 140 percent of the total estimated payday lending volume in the U.S.). And credit card interest will cost consumers more than $87 billion.
If my son deposited the shortfall the day after the bank approved and paid his overdraft that would only be 638,750.0%
When will the citizens, some journalists, City councils, Legislators, Center for Responsible Lending and Consumer Federation of America figure out that Banks are hurting Americans more than they are willing to recognize, BECAUSE they never pay these fees, BUT constantly attack a product they never have needed or choose to use themselves.
murray i totally agree with u. that is really quite stupid
Payday loans are a business. They can be used properly and improperly. If you are in a bind, you may be willing to pay that high interest rate on a low dollar amount in order to accomplish a goal or take care of a need.
There is a question of personal liability here, and it goes to everyone who borrows. If you are taking out a payday loan of 1K every 2 weeks, you probably need to adjust your habits to break out of that because you are throwing money away. If you are taking out a loan on a rare occasion, you could be saving yourself a lot of headaches for a “high percentage, low dollar” rate.
But to remember to shame payday loans, 12,000 in payments on a 1K loan is a bit much.