Wednesday, February 12, 2014

Payday loans versus bank overdraft charges

I've blogged before about very-high-interest-rate payday loans to "unbanked" customers, and the repugnance with which they are regarded in many quarters (in England and in Los Angeles).

Interestingly, the first and third of those posts have attracted a lot of comments, a few from serious people, but many from payday loan shops whose style makes it clear that they may verge on the fraudulent.

So it's interesting to note this recent blog post over at The Volokh Conspiracy:

Payday Lending and Overdraft Protection

"I’ve noted previously, I have a forthcoming paper with former Comptroller of the Currency Robert Clarke that examines competition between payday lending and bank overdraft protection. The central point is easy to grasp–payday lending and overdraft protection are products offered by different providers but which compete for the same customers. And evidence indicates that in choosing between the two products consumers generally choose rationally.
The point came to mind (yet again) reading the Wall Street Journal yesterday, “Hefty Bank Fees Waylay Soldiers.” According to the article, many members of the military are frequent users of bank overdraft protection, which has caused some concern in some quarters. The article provides no hard evidence that usage of overdraft protection has risen in recent years, but implies that the general impression is that it has."
"as we note in the article, in many situations payday loans are less expensive than overdraft protection (it appears from the article that the break even point in favor of overdraft protection is lower than for payday loans because overdraft fees on military bases are lower than typical market rates) and consumers understand this and use the products rationally."


Unknown said...

I don't have a problem with payday loan companies because they tell you how much borrowing from payday lenders will cost. I have just had a direct debit bounce, just a stupid oversight as my payday has changed, but my bank charged me $10. So my bank lent me nothing, told another company (who also charged me $25) that I didn't have enough money, and charged me $10 for the privilege. That sounds more expensive than a pay day loan to me.

Anonymous said...

Thank you for providing the information. I would like to see some more information on payday loans.
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Unknown said...

They does not look easier than any of taking Commercial Property Loans
in any county of California
. It should be more delicate to get.

Unknown said...

Tom you most certainly have hit the nail on the head. It is always super important to fully understand the terms of a loan. My brother had taken a loan out a couple of years ago and made the mistake of overlooking a small detail and had to pay an extra fee. Always ask questions is what I always say.

George Puzo |

Unknown said...

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Unknown said...

Pay day loans are great if you need the money. They are best used in an emergency. They can be really helpful when your in financial trouble.