Face to Face with Inequality

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The State of Consumer Banking

The New York Times has a report on banks colluding with online loan sharks to defraud their low-end customers:
1. The banks charge overdraught fees when the loan sharks’ automatic withdrawals cause the borrower to be overdrawn.
2. They will let the loan sharks take only the interest on the loan even when the borrower wants to pay it back in full, so that the loan is rolled over and another round of fees can be levied.
3. When people try to stop the automatic withdrawals, the banks do not honor their requests.
4. When the borrower tries to close the bank account against which automatic withdrawals are being made, the bank will keep it open and charge fees every time the loan sharks come for a withdrawal.

Yet another incentive to stop patronizing regular banks and find a local credit union instead.


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Shopping for a Payday Loan


Check Into Cash Rate Board

I’ve made two shopping trips and hit three payday loan stores and conclude that the situation is pretty straightforward. Around here, you can get up to $255 at a cost of $45 in each of the three check cashing stores I tried.  Must be a regulatory limit. The picture at left shows the whopping interest rate of 460% and peanuts. And you get to hang on to the loot for only two weeks.

All it takes is a paystub, your most recent bank statement (a printed version), a government-issued ID, and a check. In one store I was directed to cough up my social security number, for reasons unspecified. Social security number? When they are not actually checking your credit? I wonder if real customers feel ok just handing it over. (Perhaps I should hang out there for a while one Saturday and see what people do.)

If you compare this loan to taking out a mortgage, it is super-easy. But it’s actually not half as easy as I had imagined it to be. The printed statement is definitely a pain. And then you have to go back again, in person, at your next payday to hand over the entire $300. You have got to want that money.