With all of the political haggling over the payday lending industry and whether or not the payday loan is a legitimate credit option, it is certainly an interesting twist to find that some of the top banks in the nation are entering the fray by offering similar loan products to their checking account holding customers. Like the payday lending industry, reviled by consumer advocate groups and, when politically expedient, politicians throughout the nation, these short-term personal loans offered by the banks will come with triple digit APRs.

According to a September 14, 2009, Scripps Howard News Service article, payday lending is an industry that pulls in about $35 billion dollars a year. Popular with lower income borrowers, this controversial industry has long been looked down upon by the more mainstream lenders as being just a step or two above a loan shark, due to higher APRs and associated fees. Or, at least the perception of a higher cost of credit. Recent studies and reports indicate that, when dealing with short-term credit, payday lenders all too often cost the consumer less than a bank.

Perhaps that is why such top names in the banking industry — Wells Fargo, U.S. Bancorp, and Fifth Third Bancorp – have decided to brave those who would cast aspersions on this type of lending, setting aside concerns of legitimacy. After all, as noted in the Scripps Howard News Service article, payday lenders garner “estimated $7.3 billion in fees” annually from their customers, and with the condition that many banks find themselves in due to their sub-prime lending and mortgage excesses, that’s money they can’t afford to turn away.

Fifth Third Bancorp, as explained in an October 3, 2009, Flint Journal article, “says the loans of up to $500 once a month come with an APR of 120 percent.” The cost works out to be about a dollar for each $10 borrowed. According to the article, a “short-term loan for a week could cost 520 percent APR.” Fifth Third spokesman Jack Riley, as quoted by Flint Journal writer Melissa Burden, stated that this loan option “is not meant to be a predatory product, this is meant to be, especially in the state of Michigan, a product that can help out in an emergency situation on a short-term basis.”

Rates and conditions for this type of short-term personal loan are similar among the other banks offering them. While recent press releases indicate that payday lenders welcome banks entering the payday loan marketplace, not everyone is expressing such positive attitudes on the subject. Payday lending was one of the topics mentioned by demonstrators assembled to protest banks, according to an October 2, 2009, article in the Charlotte Observer. The group, N.C. United Power, gathered to protest “what the group calls the “usurious lending practices” of Bank of America and Wells Fargo/Wachovia.”

Payday lending is often the only option those with lower incomes have when it comes to getting a personal cash loan. Banks entering the market may be a good thing, helping to reduce the inclination of politicians to attempt to regulate this type of lending out of existence. After all, to many observers, when looking at bank bail-outs, the glacial pace of real banking regulation and reform, and the amount of money banks spend on campaign contributions and lobbyists, it could seem as though banks get what they pay for.

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