NEW YORK (BankingMyWay) — Payday loans continue to be a blight on the nation’s economic health, but one large bank says it’s committed to doing something about the problem.
According to the Pew Charitable Trusts, 12 million Americans take out payday loans annually, shelling out $7.4 billion, at 20,000 storefront shops and banks across the U.S.
Only 14% of payday loan consumers say they can afford to pay back the pricey loans, Pew says, with the average payday loan averaging $400 in repayment rates in two weeks.
“Payday loans are marketed as an appealing short-term option, but that does not reflect reality,” says Nick Bourke, a Pew analyst on small-dollar loans. “Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term. The loans initially provide relief, but they become a hardship. By a 3-to-1 [ratio], borrowers want more regulation of these products.”
Now JPMorgan Chase
Bank executives say the policy changes are needed, as customers don’t always fully understand the ramifications of doing business with payday lenders — especially when it comes to giving them access to their bank accounts.
“Some customers agree to allow payday lenders or other billers to draw funds directly from their accounts, but they may not know some of the aggressive practices that can follow,” says Ryan McInerney, CEO of consumer banking at Chase. “Those practices include repeated attempts for payment that can result in multiple returned items. We don’t believe these practices are appropriate, and are making these changes to help protect customers from unfair and aggressive collections practices.”
It’s a welcome step from a big bank at a time when some consumer advocates say some large financial institutions are part of the problem, rather than part of a solution.
The Center For Responsible Lending says some large banks (although not Chase) charge up to 300% on interest for payday loans. The organization adds that in 2011, the average bank payday loan customer took out 19 such loans and was twice as likely as non-payday loan customers to incur bank account overdraft penalties.
It’s not a panacea, but the Chase policy shift on payday loans is a step in the right direction for customers — and a step away from them being abused by payday loan companies.
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