Consumer advocate groups routinely scrutinize the payday loan industry, claiming that it uses a predatory business model. Payday lenders are criticized for charging high interest rates for short-term cash advances. However, consumer advocate groups tend to turn a blind eye to the high NSF fees that are common among mainstream banking institutions. Banks reap huge profits from overdraft fees, which can total hundreds of dollars if consumers fail to monitor their accounts carefully. Even if an account holder is only slightly overdrawn, banks typically charge between $30 and $40 in NSF fees per transaction
when there are insufficient funds to cover a purchase. The Consumer Financial Protection Bureau (CFPB) highlighted this unscrupulous practice in a recent report
that revealed that banks deliberately allow customers to become overdrawn so they can collect overdraft fees. In fact, the CFPB found that overdraft and insufficient fund fees account for 61 percent of bank profits from consumer checking accounts.
Payday loans are a convenient way for consumers to avoid high overdraft fees by supplementing their income between paychecks. It should be no surprise, then, that so much of the opposition to payday lenders
comes from banks. Payday advances offer consumers a way to avoid accruing overdraft fees and bounced check fees. This cuts into banks' profits. Moreover, payday lenders are required to inform customers about the high annual percentage rates (APRs) associated with cash advances, but there are no similar regulations pertaining to mainstream banks' overdraft practices, which are not transparent for the consumer.
An important distinction between payday loans and overdraft fees is that payday advances are a valuable financial resource for consumers with poor credit. In an emergency, these small short-term loans are available to customers who would typically be turned down for a loan by a mainstream bank due to poor credit and low income. If cash advances were not an option, many consumers would have no choice but to go ahead and write checks for important bills, even though there is not enough money in their checking account to cover them. Naturally, this strategy results in excessive overdraft fees, which are automatically debited from the consumer's account as soon as the next deposit is made.
It is certainly true that payday loans have high interest rates; however, they are affordable when compared to overdraft fees. Unlike most traditional banks, payday lenders are entirely upfront
with the fees associated with cash advances. There is a flat fee associated with the amount that is borrowed, and customers are not subjected to hidden fees. By contrast, bank overdraft plans contain fees as high as $35 per overdraft. In other words, bank overdrafts are essentially structured as high-interest loans, just like paycheck advances. Yet banks are not required to advertise their fees in terms of APRs, which is a major advantage. If they did have to disclose this information, the APR on overdrafts would exceed 1,000%, a rate that far surpasses the interest on most check advances.
Overdraft protection programs are not designed to benefit bank customers; they are structured to increase a bank's profitability. Do not let the mainstream banking industry trick you into believing that payday lenders are the bad guys and banks are the good guys. Bank overdraft fees represent a truly predatory practice. The next time you find yourself in a financial bind, consider a payday loan as a useful financial resource that can be used to pay the bills and avoid costly NSF fees. Mypaydayloan.com
offers short-term cash advances to help cover expenses between paychecks in an easy, affordable and secure way. Find out more about this valuable financial resource.