Consumers who are frequent users of overdraft (OD) fees at banks and credit unions could save money by bridging their cash gap with a 14- day payday advance loan, rather than paying checking account OD fees, according to a recent national study by Moebs Services.

“The average amount overdrawn on checking accounts by about 70% of consumers, according to the General Accounting Office and the FDIC, is less than $100,” said Michael Moebs, economist and CEO of Moebs $ervices. “Consumers who use a payday advance loan for $100 or less will pay an average of $17.97, which is 33 percent less than the $27.01 it costs for an overdraft of that same amount from a checking account,” he explained.

One of Glenbrook's rules about innovating in payments is that "convenience is trump" when it comes to consumer adoption.

Reading Nicole Sturgill's post titled "The Underbanked – Are we making cross-selling efforts or are they just not working?" on the Counting on Currency blog this morning about the FDIC's recently issued report on the Un/Underbanked brings this into focus again:

"The #1 reason the underbanked participants cited was that it was easier to get a payday loan or borrow from a pawn shop than it was to get a bank loan."

The Payment Cards Center of the Federal Reserve Bank of Philadelphia has published a new paper titled "Restricting Consumer Credit Access: Household Survey Evidence on Effects Around the Oregon Rate Cap" by Jonathan Zinman of Dartmouth College. READ MORE »

In a very interesting article titled "Check Cashers, Redeemed", Douglas McGray writes for the New York Times Sunday Magazine about check cashers, pay day loans and banks.

McCray writes that about how the combined collection of check cashers and pay day lenders have "more outlets, in total, than all the McDonald’s restaurants in the United States plus all the Starbucks coffee shops. Inside, it’s like banking turned upside down. Poor customers are commodities, deposits are irrelevant, bad credit makes for a good loan candidate and recessions can be boom times."

In particular, he looks at Nix Check Cashing, a southern California-based company that was acquired last year for $45 million by one of the country’s largest credit unions, Kinecta.

The Center for Financial Services Innovation has released a new paper titled “A Fundamental Need: Small-Dollar, Short-Term Credit” by CFSI’s Michael J. Herrmann and Jennifer Tescher that explores "recent trends in small-dollar value, short-term credit, placing it within the context of the longstanding demand for these loans and the successes and failures of those who have provided them. Regulatory pressure and market changes are spurring private-sector innovation in this market niche. Herrmann and Tescher identify factors that are likely to lead to success in developing and delivering new products that are profitable for the provider and fair to the consumer."

In his column today titled "The Great Seduction", New York Times columnist David Brooks writes about how, in his view, the US has moved from "industrious, ambitious, and frugal" to "financial decadence, the trampling of decent norms about how to use and harness money." He's stimulated by a recent report titled "For a New Thrift: Confronting the Debt Culture" from the Institute for American Values - a summary of which is available online in this article titled "A Nation in Debt" by Barbara Dafoe Whitehead.

NetSpend has announced an agreement with QC Financial, provider of payday loans, for a prepaid debit card program. READ MORE »

The Pew Charitable Trusts have announced a new project aimed at 'helping America's workers underserved by mainstream financial institutions secure access to safe, affordable, fair, and empowering bank accounts. The Pew Safe Banking Opportunities Project, a two-year $2.1 million initiative, will develop and promote standards for bank accounts so that moderate- and low-income households that are new to or have been left out of the mainstream banking system are less likely to have to rely on overly expensive, income-stripping financial products.' READ MORE »

Research analyst Kristie M. Engemann and economist Michael T. Owyang of the Federal Reserve Bank of St. Louis have published an article in the April issue of The Regional Economist titled "Extra Credit: The Rise of Short-term Liabilities".

In today's Wall St. Journal, former president Bill Clinton and California governor Arnold Schwarzenegger have an op-ed piece titled "Beyond Payday Loans" - where they write about efforts they're backing to help reduce the $8 billion spent on check cashing services, payday loans, etc. They write: "Here is one initiative that can unite progressives and conservatives as well as business leaders and community activists: helping the "unbanked" enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market."

Christopher Peterson of the University of Florida - Levin College of Law has written a paper titled "Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits" (PDF).

Donald P. Morgan of the Federal Reserve Bank of New York has published a staff report titled "Defining and Detecting Predatory Lending" (PDF). From the abstract: "We find that in states with higher payday loan limits, less educated households and households with uncertain income are less likely to be denied credit, but are not more likely to miss a debt payment. Absent higher delinquency, the extra credit from payday lenders does not fit our definition of predatory. Nevertheless, it is expensive."

The Community Financial Services Association of America (CFSA), a national trade group of responsible payday
advance companies, has issued a press release "dismissing a report by the Center for Responsible Lending (CRL) as misleading and lacking perspective."

Nichole Monroe Bell writes for the Charlotte Observer about some concerns being raised about a new grocery credit card called BonusPay that was introduced in all South Carolina Bi-Lo grocery stores last week. The card is issued by Purpose Solutions, a subsidiary of CompuCredit, and the First Bank of Delaware. According to Bell, "with BonusPay, shoppers are given a credit line of $50 to $200 and are charged $3 or $5 each time they use the card at the checkout, plus $4.99 for each month they use the card. The balance and fees are deducted from their checking account when they get their paychecks."

On Sunday, the Buffalo News ran the first story in a four part series by staff reporters Rob Watson and Jonathan Epstein about the "high cost of being poor." The story introduction commented "every day, the working poor face a kind of Alice-in-Wonderland reality where those who can afford the least pay the most." A must read.

The Institute for Public Administration at the University of Delaware yesterday held a conference titled "The High Cost Of A Low Income" to explore financial services in under-served markets.

Gail Liberman and Alan Levine report for MarketWatch.com on so-called "bank alternatives" including payday loan companies seeking to target the financial strapped middle class.

Jay Speer, acting director of the Virginia Poverty Law Center, writes an op-end piece for the Daily Press in Hampton Roads, VA about the rapid growth in payday loans in that state and reform he wants to see to address the problems he sees.

Binyamin Appelbaum reports for the Charlotte Observer on a ruling yesterday by the North Carolina banking regulators that payday lender Advance America violated state law by charging excessive interest rates on short-term loans.

The Sioux Falls (SD) Argus Leader reports on the consumer lending business in South Dakota - where the industry is relatively "loosely regulated" and where payday lending is booming.

Anita Powell of the Cox News Service writes in the Philadelphia Inquirer about initiatives to help troops avoid compounding their debt.

Since last year, officials with Army Emergency Relief, a private nonprofit organization, have been working on a new national program called Commanders Referral that will debut at Fort Hood this year. The program, which offers soldiers two no-interest $500 loans a year, is an attempt to undercut the aggressive payday-loan business, military officials said.

Kathy Kristof reports in this morning's Los Angeles Times on payday lenders.

The payday lending industry, virtually nonexistent a decade ago, accounts for roughly $25 billion annually in loans, according to a recent study. More than 90% of payday loans are made to repeat borrowers such as Monti, whose short-term cash crisis was only worsened by the quick fix.

The article goes on to say:

The typical annual effective percentage rates on payday loans range from 391% to 443%, according to a study (PDF) released last month by the Center for Responsible Lending. Payday lenders get around state usury laws by characterizing the cost as a fee rather than an interest rate.