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Payday Lending A New Opportunity for Community Banks?

BY LIN GRENSING-POPHAL

Conduct a Google search for “payday loans” and you’ll turn up 13.6 million results. The loans, offered through  storefronts in virtually every city around the country, are so named because they originated as a means for people to  “get enough cash to tide me over until payday.”

The downturn in the economy that started back in 2008, leading to high unemployment rates and a dearth of jobs,  caused the demand for such quick loans to skyrocket to help people make ends meet. Predatory lenders were quick to  emerge to offer help—but at a high price.

How Payday Loans Have Traditionally Worked The FTC’s web page on payday loans explains how they work:
“A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee  they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to  hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the  company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The  loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or ‘rolled over’.”


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