Are Payday Loans Really As Expensive As They Claim?

It seems as if the financial industry has taken it on themselves to destroy the working poor if only to enrich huge corporate juggernauts. While many so called consumer watchdog groups and even the Federal Government are wringing their hands proclaiming the payday loan industry charges huge fees, they purposely ignore the fees charged by the banking industry.

According to the published rates and fees published by a the largest bank in the US, they charge a minimum of $19 PER CHECK EACH up to 5 per day!

Here is an excerpt taken directly from their fees document.

For the first day your account has an occurrence 
(an "occurrence" is a day with at least one overdraft 
item or one returned item), fee for each overdraft item 
and for each returned item ......................................$19.00

For the second day through the fourth day your 
account has an occurrence during the current month 
and preceding 12 months, fee for each overdraft item 
and for each returned item ......................................$33.00

For the fifth day and subsequent days that your 
account has an occurrence during the current month 
and preceding 12 months, fee for each overdraft item 
and for each returned item ......................................$35.00

Fee applies to each overdraft item and each returned item with a 
maximum of 5 items each day.

So while we have the federal government and many so-called consumer groups are complaining about the high cost of a payday loan, these huge, highly regulated financial institutions charge fees that depending on the amount of the overdraft would make a typical payday loan look like a bargain.

The charges above are typical in the banking industry with some being much higher per overdraft for a much lower time period. Further, if you don't clear the overdraft charges fast enough, banks have been known to not only close your account but also file your name with TeleCheck, a banking informational clearinghouse, thereby making it almost impossible for you to open another account at a different bank.

It's interesting that while the federal government and many consumer groups are looking to stop or limit the payday loan industry, they all seem to turn a blind eye to very similar practices of the banking industry.

Consider the typical payday loan runs for between 2 and 3 weeks, and averages 300 dollars for a fee/interest of 75 dollars. If you used the proceeds of a payday loan to cover an overdraft situation that included five items, the bank could have charged $165 dollars to $175 dollars in fees. Most banks are now charging fees like this while consumer groups worry about payday lending.

Understand that I'm not suggesting that payday loans are a good way to manage your finances. Still, if you're facing a situation where you may have multiple items that could be charged overdraft fees, a payday loan may just be your best bet.

An "item" by the way is defined by the same bank fees document as... 
a check, an in-person withdrawal slip, an ATM withdrawal, or an other electronic instruction (such as a point of sale or Online bill payment instruction).

This means that if you have accidentally overdrawn your bank account and then used your bank card to purchase water at the local convenience store for a $1.25, that drink of water could cost you the 1.25 PLUS a 35 dollar overdraft fee.

If you find yourself in this type of unfortunate situation a fast payday loan may be a way to protect your banking privileges and save some fees that those poor banking institutions charge.

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