Efforts renewed to control excessive cost of payday loans
One of the nation's top banking regulators Thursday announced new efforts to
develop alternatives to payday loans and other high-cost products, citing an
"astonishing" gap in the cost of credit that is penalizing disadvantaged
borrowers. The comments came as a non-profit consumer group issued a report
saying high fees on so-called payday loans, small loans to be repaid with their
next paychecks, cost consumers $4.2 billion a year. The report by the Center
for Responsible Lending found an average payday borrower paid $793 for a $325
loan. Further, it said that 90% of payday revenue came from borrowers who were
unable to pay the balance and fees by the due date, forcing them to repeatedly
roll over the loans. Annual fees can run from about 300% to 1,000%. There are
about 22,000 U.S. payday outlets. "It almost seems as if the market has become
divided between two groups: those who successfully rely on banks for virtually
cost-free basic financial services and those who pay high amounts," Federal
Deposit Insurance Corp. Chair Sheila Bair told the Consumer Federation of
America in a speech. "The fortunate accumulate wealth through cost-free savings
vehicles. … Others pay set-up and maintenance fees for small-dollar savings
accounts which erode principal," she said. Bair said the FDIC is working with
the Association of Military Banks of America and more than 125 banks near
military bases to develop cost-effective, small-dollar loans that will possibly
include a savings component. The FDIC will hold a conference with the banks on
Wednesday.
