Weak Economy, Higher Bank Fees Give Boost to Payday Lenders
The payday loan industry is thriving as customers weather the economic downturn and become unhappy with growing fees charged by banks. One example: Spartanburg-based Advance America reported another strong quarter of earnings this week and plans to spend nearly $47 million acquiring another large quick-cash chain. One reason Advance America and its quick-cash competitors are doing so well is more people are out of work - or earning less than they used to - and need short-term funds to make ends meet. Plus, a lot of people have had their credit wrecked in the downturn and can't get bank loans. There are also indications the boom will continue, thanks to new debit card and checking account fees banks are charging. "It's been decades since consumers have had to look at financial services as anything but free in the mainstream, so we're really in a very uncomfortable transition period right now," says Patricia Hewitt, who tracks retail banking trends at Mercator Advisory Group. Hewitt says it's too soon to tell if Bank of America's upcoming $5 debit card fee, for example, will drive customers to payday lenders. After all, you could end up paying more than that in interest on a short-term loan. But Hewitt notes that credit unions have certainly seen a recent bump as banks have raised their fees. Data from the FDIC show one-third of South Carolina households and one-quarter in North Carolina either have no bank account at all or use outlets such as payday lenders for their primary transactions. Hewitt says the changes in retail banking mean "we may see some shifts taking place over the course of the next year as consumers begin to rationalize these new fee structures that they're being presented with at banks." The FDIC's consumer survey found 31 percent of U.S. households that dropped a bank account did it because they didn't want to pay fees or couldn't maintain the required minimum balance.