Banks Eye Low-Income Consumers with High-Fee Products

More of the biggest U.S. banks are offering products to low-income customers, such as payday loans, that carry high fees and are not limited by recent reform laws.
U.S. Bank, Regions Financial and Wells Fargo are among these banks that are quickly expanding such services as they attempt to recoup revenue lost to limits on debit and credit card fees under new regulations, according to The New York Times.
Consumer advocates are concerned about this trend. And the U.S. Consumer Financial Protection Bureau (CFPB) is reviewing these expanded services by the big banks to ensure that the marketing of these products and services sufficiently protect bank customers.
“It is a disquieting development for poor customers,” Mark T. Williams, a former Federal Reserve Bank examiner, told the Times. “They are getting pushed into high-fee options.
Payday loans commonly offered by storefront businesses have become a troubling new or evolving product offered by big banks.
Bank “payday” loan rates can be as exorbitant as their storefront counterparts, carrying an annual percentage rate (APR) of 365 percent based on the typical loan term of 10 days, according to a study by the Center for Responsible Learning that has recently gotten the attention of the CFPB.
The CRL study found that typical bank “payday” loans – banks don’t refer to them as such – are outstanding for only 10 days. But banks typically charge $10 per $100 borrowed, amounting to a 365 percent APR.
Nessa Feddis, vice president and senior counsel at the American Bankers Association, responded to the Times article in an opinion piece that pointed out how big banks are losing money on typical checking accounts.
Congress cut in half the fees merchants pay to use the debit card system, meaning $7.5 billion less to support checking accounts, Feddis said.
In addition, low interest rates have decreased income.
“For example, if a bank earns 2 percent by investing those funds, an account with an average $2,000 balance would earn just $40 annually – a drop in the bucket compared to the $300 it costs the bank to provide the account,” writes Feddis.

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