UK Payday Loan Service

By Ina Constantine

This article looks at the way banks exploit customers with NSF and overdraft fees. It contrasts this with the alternative of using payday loans savings and proposes that these are in fact cheaper than bank fees. It goes on to show how banks lobby aggressively against the payday industry fearing cuts in there fees. The findings are based on a US study by the federal government and is freely down loadable.

This is an independent agency part of the federal government - created in 1933, just when thousands of banks failed. The 1920s and early 1930s saw thousands of banks fail. The FDIC is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party.

The FDIC Study of Bank Overdraft Programs was initiated in 2006 in response to the rapid growth of automated overdraft programs, defined as programs in which the bank honors a customer's overdraft obligations using standardized procedures to determine whether the non-sufficient fund (NSF) transaction qualifies for overdraft coverage. Data and information were gathered through a survey of a sample of institutions representing 1,171 FDIC-supervised banks, and a separate data request of customer account and transaction-level data from a smaller set of 39 institutions.

The Federal Deposit Insurance Corporation (FDIC) published the results of a two year study on the use of overdraft programs operated by FDIC-supervised banks. Astoundingly the study found that customers pay in excess of 3,500 percent APR on a NSF check - on average.Customers in low income areas were more than likely twice as certain to incur these fees.

The FDIC study reinforces the payday loan industry's position that short-term cash advance loans are significantly less expensive than traditional bank overdraft fees. The other major difference is than banks are automatically enrolling customers in programs that carry APRs and other fees that are in fact far more expensive than a payday loan. Namely 75% of banks did this.

The FDIC study concluded that a typical bank customer repaying a $20 overdraft in two weeks would incur a $27 overdraft fee (the survey median) at an APR of 3,520 percent. A customer repaying a $60 ATM overdraft in two weeks would incur an APR of 1,173 percent and a customer repaying a $66 check overdraft in two weeks would incur an APR of 1,067 percent. Oddly enough the faster one pays down the overdraft the higher the APR turned out to be.

Consumer advocacy groups like the Center for Responsible Lending (CRL) have lobbied to ban payday lending, leaving consumers with no option other than to pay overdraft fees to banks and credit unions. CRL have led a charge to pass a law banning payday lending in Ohio. In 2006, Ken Compton, CEO of Advance America, said, "Contrary to the CRL's spin, responsible uses of the payday product provides consumers firm footing to overcome unexpected financial circumstances,".

Some key findings;

Over 90% of banks completed overdraft fees without informing the customer.Less than 8 percent of banks inform consumers that funds are insufficient before transactions are completed, offering the customers an opportunity to cancel the NSF transaction and avoid a fee.

Consumer complaints about automated overdraft programs were received by 12.5 percent of banks that operated these programs.

Almost 9 percent of consumer accounts had at least 10 NSF transactions during a 12-month period. 4.9 percent had 20 or more NSF transactions.Clients of banks with 20 or more NSF transactions are charged $1,610 per year.

About the Author:

Marsha Smythe is intrigued by the concept of APR and how banks can get away with charging such high amounts. He makes available on his blog downloads from the Federal Deposit Insurance Corporation (FDIC). These are a must read for anyone contemplating overdraft versus same day loan. Although US bank orientated the same rules apply to both UK same day loan and Canada payday cash.