UK Payday Loan Software

By Shelly Ganes

This article looks at the way banks exploit customers with NSF and overdraft fees. It contrasts this with the other option known as payday or cash advances 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.

In 2006 legislation allowed banks to apply automated overdraft programs - much to the detriment of consumers. This is a system where the bank honors customers obligations using computer rules to determine non-sufficient qualification 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. The study found that a typical NSF check can result in overdraft fees and interest in excess of 3,500 percent APR. 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 study concluded that a typical customer would incur fees of $27- for each $20 overdraft over a 2 week period. A $60- ATM overdraft in 2 weeks would incur an APR of 1,067 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. Surprisingly, the study also concluded that the faster a customer repays an overdraft, the higher the resultant APR.

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.Very few banks (less than 8%) inform customers that they are about to incur insufficient funds. There is little opportunity to cancel the transaction so avoiding the fee.

Bank customers complaints about overdraft fees were received by twelve percent of banks.

Almost 9 percent of consumer accounts had at least 10 NSF transactions during a 12-month period. Nearly five percent of customers have 20 or more NSF transactions. Customer accounts with 20 or more NSF transactions were charged $1,610 per year in NSF fees on average.

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 payday loans. Although US bank orientated the same rules apply to both UK Payday Now and Canada payday cash.