Guest post from Gary Kalman, EVP, Center for Responsible Lending
this week, Professor Jeff Sovern posted a piece here questioning whether banks
should get out of the “deposit advance” lending business—i.e., payday
lending. We appreciate his comments, but loan sharking is loan sharking.
Banks are pushing triple-digit interest loans that are structured to create the
same kind of debt trap set by storefront payday lenders. (See our recent
research, “Triple-Digit Danger: Bank Payday Lending Persists")
end up worse off, since these loans often trigger overdraft fees, unpaid bills
and ultimately bankruptcy. Payday loans—whether by banks or stores—aren’t
analogous to mildly defective toasters. These loans are toasters that
promise a bit of warm bread and then go up in flames. Giving someone a
loan they can’t afford makes no sense, especially when the person is already in
a financial hole.