According to a news report officials are investigating banks role in payday loans. Why should they do it and what is the banks fault if someone is giving money to someone at an interest and using them as a medium to do business?
When someone applies for a payday loan, they do not get cash in paper – the only way they can get cash is in their current bank account. This is very important as otherwise the risk for lenders increases many folds if they start giving real cash to people seeking these loans. Its vitally impossible to physically track them and ask them to give their cash back. This will in fact make payday lending a very high risk business – so high that ultimately this business will be dead.
This whole process of giving and taking money back has to be automated so that there is no need for lenders to run around people asking their money back – it should be done automatically. And that’s only possible through banks and they need to co-operate. Now you get the idea. Banks do play a role in payday lending. But why should they do it? They can deny a payday lender putting money in their customer’s account and then automatically take away cash from their customers account when its due. Why do this extra work? They can easily deny the whole operation. Of course legally they cant do It, but they can create hassles for the lender. But they don’t want to do it. WHY?
Have you ever heard of over-draft fees? An over-draft facility is when you are able to withdraw cash or get a check cleared without having money in the bank. Of course this comes with a rider. You need to put this money back in your account within a stipulated time to avoid legal hassles. You cant win against these financial giants. Can you. So you will actually put that money back as soon as possible in your account. But this is not all. Why should banks give you cash from their pockets and help you. That’s not their business. It is because a fees is associated anytime an overdraft is done. Did you get the point. The banks want to make money from an overdraft. They are not interested why an overdraft is done. Their only interest is the fees you pay when it is done.
Now consider this. There are a lot of people who take a payday loan and are not able to payback the loan due to non-availability of cash in their accounts. Banks fill this gap and make money. Banks pay the lenders from the clients account if overdraft facility is available. They in-turn charge their customers a fees to do it. Both the banks and the lenders are happy, leaving a sulking and poor customer running pillar to post to fill their account back with cash.
Look at the customer. He not only pays an interest to the lender, but he also now have to pay this overdraft-fees to the bank. Isn’t this silly? Yes it is and therefore officials are looking closely the roles banks pay in payday lending business.
It is strange that some banks allow automatic withdrawals even when a customer has requested they be stopped. In New York a customer requested to close her bank account. This was not done by the bank. She was shocked to see $1500 gone from her account in matter of days and the reason attributed was interests for the payday loans received. While it could be true that she indeed had taken a loan, but it is also important to note that banks had no business to keep the account open when that customer had clearly asked them to close it.
Some banks have even started offering payday loans to their customers. However this is still not a wide practice and is not done by all banks. But we wonder how long will it take for all banks to start payday lending?
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