Dealing with emergency expenses is difficult for even the most affluent among us. Lower income households, however, can fact outright ruin when financial emergencies rear their ugly heads. And many low to mid income households in this country are either underbanked or unbanked, so they often have very few options when they need to borrow money to take care of these types of expenses. Often, these folks turn to alternative financial service providers, like online payday lending companies.
More often than not, people who take out payday loans run into no problems with repaying them, and they are then free to go about their normal routines. In some cases, though, people get hit with fees that they may not have expected. Some reports have shown that borrowers pay an average of $185 in penalties from their banks – usually overdraft or non-sufficient fund fees – when lenders go through the process of automatically deducting repayment for loans given. It is estimated that about a third of online borrowers who winded up with bank penalties had to deal with involuntary bank account closures.
This has happened to consumers when online lending companies repeatedly make debit attempts on their customers’ accounts. This causes extra bank fees to kick in for the account holders, even though these efforts usually lead to no payment being recovered on the part of the lending companies.
Of course, the CFPB is keeping tabs on online payday lending companies, so it comes as no surprise that the Director of the CFPB, Richard Cordray has a strong opinion on these types of issues. Cordray said, “Each of these additional consequences of an online loan can be significant, and together they may impose large costs, both tangible and intangible, that go far beyond the amounts paid solely to the original lender,” said CFPB Director Richard Cordray.
These findings come with the third analysis that the CFPB has done on the United States payday lending industry. Payday lenders provide unsecured loans to their customers, and typically the person who borrowers from one of these lending companies pays the lender back within a few weeks. It used to be that most payday lenders got paid back via a post-dated check. These days, though, online payday lenders usually automatically deduct the loan amount plus fees when the loan has run its term. The Obama administration has always had a disdain for this industry, and has supported the CFPB in its efforts to cook up new regulations that could potentially drive a lot of smaller lending companies out of business.
The CFPB analyzed about a year and a half’s worth of data from Automated Clearing House. This is the financial network used to put money into a borrower’s account and also to extract payment when the loan payment comes due. The data analyzed showed that some borrowers did not have adequate funds in their accounts when the loan repayment request happened, and that this – as one might expect – resulted in people getting hit with overdraft charges from their banks.
Here’s the thing, though – these fees are not charged by payday lending companies; it is the traditional banks that love to profit from imposing these fees. It is not the fault of a lender if a borrower does not live up to their end of the agreement by having adequate funds to cover the transaction in their bank accounts. No matter how much Cordray and his team want to twist these types of situations into being the fault of online payday lenders, the bottom line is that the fees are charged by the banks and happen because consumers fail to keep enough money in the bank to cover loan payments that they knowingly agreed to. End of story.