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Bank of America is too big to do payday loans, but credit unions and small, regional banks are getting in on the action.
The L.A. Times ran a piece a few days ago about how banks and credit unions are getting into the lucrative but ethically dicey business of payday loans — short-term, high-interest loans that, until recently, were aimed at customers who don't have typical relationships with banks or credit-card issuers. This morning, KPCC's "AirTalk" with Larry Mantle did a segment on the issue.
Payday lending is rife with problems — and the potential for big returns. Here's the LAT:
[M]any people can't repay the loans when they come due. Instead, they simply roll the loans over from payday to payday, or take out new loans to cover the old ones, piling on additional costs that can result in interest charges of 300% or more over the course of a year.
The move by banks into payday lending — or direct deposit advances, as many of them call it — led about 200 fair-lending, consumer, religious and labor groups to write federal regulators last month and call for prompt action to stop "this inherently dangerous product."
"There are people who wouldn't walk into a payday loan store but think that if a bank is doing it, it must be safe," said Lauren K. Saunders, managing attorney with the National Consumer Law Center. "If you take a look at these products from a consumer protection standpoint, they raise serious red flags."