One of the major issues that opponents to the payday loan industry has is the rate percentage. Short-term loans do require a higher rate of interest. However, the effect on consumers due to the rates is often taken out of context and exaggerated. Payday loan advocates have often pointed out that the fees attached to “traditional” borrowing, such as credit cards, are often higher than payday loans.
USA Today recently reported an increase in bank credit card fees. It reported that, “A growing number of banks are raising credit card fees or rolling out new fees…” Some of the specific banks cited were Wells Fargo, which increased late fees and cash-advances fees; Chase, putting a yearly $120 fee on cards with low interest rates; and American Express, which raised its late fee for some business cards.
Robert Hammer, chairman of R.K. Hammer,stated that banks “are not going to watch their costs go up and take no action.” So,in essence, banks are deciding to increase rates and fees to protect itself against the failing economy. I wonder if the “consumer advocates” will be fighting against this action as hard as they fight against short-term payday loans.
Managing director of Fitch Ratings, Kevin Duignan, recently stated that, “The unemployment outlook is dreary, there’s been a tremendous loss of personal wealth, and the housing situation has forced many consumers to take a hit.” So, in response to the “huge hit” that consumers have been taking, banks will raise rates and fees.
It’s interesting to note that many payday loan consumers recognize that the fees they are charged by banks are already much greater than those needed to take out a payday loan. That is exactly why payday loans are such a great benefit to those who need short-term loans in a hurry. They know exactly what the fee will be and don’t have to worry about any hidden fees or charges.
