Though the banking industry has made it clear to American individuals and businesses that the recession has made lending much tighter, it seems there is no shortage of funds when it comes to issuing money to payday loan companies. This is according to a new report released on Tuesday by community group National People’s Action and watchdog group Public Accountability Initiative.
Payday Loan Industry Backed by Nation’s Largest Banks
The new report issued by the community groups blames the nation’s largest banks for the massive growth of the payday loan industry. It went on to say that billions of dollars from giant national banks, specifically Wells Fargo & Co. and Bank of America Corp., have kept the industry booming and is setting it up for expansion–even while consumer groups and government officials are fighting to reduce high-cost loan products.
The banks accused of issuing loans to the payday industry don’t deny the claims. In fact, a representative from Wells Fargo has been quoted as saying it is not the bank’s business to impose barriers on new credit customers. However, the representative did note that banks place a higher level of scrutiny on payday lenders and check-cashing businesses.
Banks Getting Into the Payday Loan Business
One reason banks may be more willing to lend to these businesses is because of the interest they are guaranteed to get back, something they many not receive from an individual or small business.
According to the report, in addition to standard bank accounts and other financial vehicles, some banks are beginning to issue their own high-cost loans. Realizing how ripe this industry is for growth, these banks can take advantage of money collected from payday lenders and make their own money on the side.
Should I Take Out a Payday Loan?
Since it looks like the payday lending business may be here to stay, some individuals who have a difficult time acquiring personal loans from banks may be tempted to take out their own payday loan, but is this a good idea?
Most experts agree that taking out a payday loan is setting you up for a financial trap that’s difficult to get out of. With interest rates sometimes as high as 500 percent, paying one off results in spending too much for the product received and therefore, just isn’t worth it.
If you are having a hard time getting a bank loan and need money, you might consider peer-to-peer lending, which often offers rates equal to or lower than bank rates from personal lenders. By taking this route, you may not be scrutinized as harshly for your past while still getting your hands on the money you need.