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Finally, Some Good News on Payday Loans

March 25, 2013
Plain English Version

Lenders make payday loans to lower-income borrowers. Some of America’s biggest banks manage the loans for Internet and storefront payday lenders. The fees the banks charge and collect are outrageous.

JPMorgan Chase is one of the biggest banks servicing the loans. They take the money from personal checking accounts and turn it over to the payday lenders. They charge the borrower late fees and overdraft fees

The banks also make it as hard as possible for borrowers to close their bank accounts.

JPMorgan said it would change its practices by limiting the penalty fees for returned payments or insufficient funds. It also said it would make it easier for customers to stop withdrawals and close accounts.

Wells Fargo and Bank of America did not change their policies.

Payday lenders may charge interest rates as high as 500 percent a year. Fifteen states do not allow payday loans. For example, New York limits interest rates on loans to 25 percent.

Payday lenders are going offshore and online to get around state laws. In 2011, payday loans were $13 billion compared with $5.8 billion in 2006.

Both the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are looking into how banks enable payday lenders to get around restrictions.

Observers hope more positive changes are coming in the future.

Source: The New York Times

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