I have touched on this subject before, and this morning I was reminded once again that banks are an easy target that the payday industry should exploit more.   Banks are lucky to have the payday industry – it deflects negative attention from the regulators and consumer advocates.  Some banks say they have launched innovative products that will compete with the payday or auto title loan.  Most who I speak to in the payday industry aren’t really concerned, the services don’t have the same flexibility or might not be enough to get the consumers fully taken care of.  And, banks aren’t really equipped to handle the short term loan needs of consumers.  Their mindset is much different, one based on volume and low servicing requirements.

About every month or two I see an article like this one titled “Fifth Third sued by payday advance loan borrowers” in the Cincinnati Business Courier.

Here’s the link:  http://www.bizjournals.com/cincinnati/news/2013/02/14/fifth-third-gets-hit-by-another.html

Basically, Fifth Third offers a payday product, they did a bunch of loans, and a class action lawyer sued them saying the bank really charged 900% APR on their payday product.  There are administrative fees on the service in addition to the APR % that spike the perceived APR of the entire agreement when days in the loan term are shortened due to early payoff.  That’s the argument, I have seen it many times in Texas with the Credit Access Business service fees, lien fees, and the 10% APR all being rolled into one finance charge and forced into an annual percentage rate.

So, industrious attorneys are realizing that banks are easy targets!  Banks are not equipped to operate in this sector of consumer need, so you can bet that they are going to have holes in their payday products that leave the door open for lawsuits. The payday industry needs to do the same and target bank liabilities in the same way.  Representatives of the industry should spend less time defending the payday products and more time highlighting the weaknesses of the banks.  So, let’s arm the readers of this blog with my all time favorite piece of data on the common bank NSF charge APR% a consumer will pay on a bounced check.

$100 Payday Loan (14 days) = $22.88 Fee (596% APR)
$100 Bounced Check = $54.87 Fees (1,431% APR)

Yes, a consumer will have to pay 1,431% APR if they write a $100 check that bounces at a local retailer, then have pay a $35 NSF fee to the bank, and the remainder in return item fees to the retailer.  In this case the bank is not even honoring the check and just charging a $35 overdraft fee!  The retailer is the one who ends up extending the credit to the consumer until they come back in and pay for the purchase, which is so much worse.  So, what is the bank’s purpose in that scenario?  The fact is that down deep, the banks do not want the middle and low income consumers who run into these problems, which is indicated by their decrease of deposit accounts and the increase in the size of the “non-banked consumer” market.

The payday industry is very pleased to offer the service and attention that consumers in this growing sector deserve.  Consumers who utilize Credit Access Business services in Texas have a 92% satisfaction rate.  JD Power and Associates’ 2012 Retail Banking Study arrived at a 75% consumer satisfaction rate in the sector.  So, Texas Credit Access  Businesses have 23% higher satisfaction rate, and in many cases charge fees that are 60% lower!  Whoa, let’s tell that story more…

CAB Consulting is headed by Michael Brown.  Please contact us anytime to discuss your involvement in the payday industry!   Email Michael@CreditAccessBusiness.com or call 214-293-8676.