Consumer Credit Research Foundation Releases Publication: 'Contrasting Payday Loans to Bounced Check Fees'; Economist Publication Provides Analysis in
Consumer Credit Research Foundation Releases Publication: 'Contrasting Payday Loans to Bounced Check Fees'; Economist Publication Provides Analysis into Real Costs of Bounced Check Fees vs. Payday Loans
Excerpt:
"Payday loans and bounced-check fees are increasingly penetrating America’s
economic landscape. Both of these financial-service vehicles have recently
drawn the attention of federal regulators. This paper examines and contrasts
these financial services and their real costs to consumers. Although actual
data regarding individual consumer usage of overdraft services require
refinement, inferential data suggest that payday loans hold a cost advantage
over overdraft services for the average consumer."
--------------------------------------------------------------------------------
Consumer Credit Research Foundation
The Consumer Credit Research Foundation (CCRF) released, Contrasting Payday Loans to Bounced Check Fees, a white paper which concludes that bounced check fees can be more costly to consumers than payday loans and that not enough consumers are aware of this.
The publication is authored by Thomas E. Lehman, Ph.D., Associate Professor of Economics, Indiana Wesleyan University.
"There seems to be a fallacy that says bounced check fees are a less expensive alternative to payday loans. On the contrary, the real cost of a bounced check is higher than a typical payday loan. Moreover, because overdraft protections are not subject to Truth in Lending requirements, these fees represent a significantly larger economic cost than they are understood to be," said Lehman.
The paper explains the tremendous growth these two sectors have been experiencing in the last decade but more importantly, it provides a great detail of analysis as to why payday loans can be a better option for consumers.
Payday loans are subject to certain government requirements that translate the cost of a payday loan into an easily understandable annualized percentage rate. Conversely, the bounce check fees that banks and other financial institutions charge when a checking account is overdrawn are not subject to the same requirements. This paper attempts to level the playing field by expressing bounced check fees as an annualized percentage rate.
The average amount of a bounced consumer check is believed to be $155. Applying the average nonsufficient (NSF) fee, which is known to be $28.51 to the $155 bounced check yields an interest rate of 18.39 percent per occurrence. If this were extended to an annualized interest rate, the resulting APR becomes 478 percent.
Moreover, it is often the case that if a consumer encounters one bounced check fee, there will be additional outstanding checks that will experience the same fee again. For example, if a consumer has five outstanding checks and the largest one is cashed by the bank first, the other four remaining could bounce the account. As a result, four fees of $28.51 will be applied totaling $114.04.
"The debate over payday loan fees and bounced check fees is too often based on an apples to oranges comparison," said Lehman. "The public deserves to have an accurate comparison of the two financial services and the real costs associated with them. Consumers will act in what is in their best interest but they must be provided with accurate information before they can make the choice that best fits their needs."
A copy of Contrasting Payday Loans to Bounced Check Fees is available online at http://www.consumercreditresearchfoundation.com.
Dr. Tom Lehman is Associate Professor of Economics at Indiana Wesleyan University, Marion, Indiana and recently co-authored Payday Lending: A Practical Overview of a Growing Component of America's Economy, published by Consumer Credit Research Foundation based in Washington, DC.
Consumer Credit Research Foundation was formed to support economic research into the availability, choice and cost of consumer credit for moderate- and middle-income Americans and to apprise the public of such research. http://www.consumercreditresearchfoundation.com
Consumer Credit Research Foundation - examining the economic issues around payday lending.
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Excerpt:
"Payday loans and bounced-check fees are increasingly penetrating America’s
economic landscape. Both of these financial-service vehicles have recently
drawn the attention of federal regulators. This paper examines and contrasts
these financial services and their real costs to consumers. Although actual
data regarding individual consumer usage of overdraft services require
refinement, inferential data suggest that payday loans hold a cost advantage
over overdraft services for the average consumer."
--------------------------------------------------------------------------------
Consumer Credit Research Foundation
The Consumer Credit Research Foundation (CCRF) released, Contrasting Payday Loans to Bounced Check Fees, a white paper which concludes that bounced check fees can be more costly to consumers than payday loans and that not enough consumers are aware of this.
The publication is authored by Thomas E. Lehman, Ph.D., Associate Professor of Economics, Indiana Wesleyan University.
"There seems to be a fallacy that says bounced check fees are a less expensive alternative to payday loans. On the contrary, the real cost of a bounced check is higher than a typical payday loan. Moreover, because overdraft protections are not subject to Truth in Lending requirements, these fees represent a significantly larger economic cost than they are understood to be," said Lehman.
The paper explains the tremendous growth these two sectors have been experiencing in the last decade but more importantly, it provides a great detail of analysis as to why payday loans can be a better option for consumers.
Payday loans are subject to certain government requirements that translate the cost of a payday loan into an easily understandable annualized percentage rate. Conversely, the bounce check fees that banks and other financial institutions charge when a checking account is overdrawn are not subject to the same requirements. This paper attempts to level the playing field by expressing bounced check fees as an annualized percentage rate.
The average amount of a bounced consumer check is believed to be $155. Applying the average nonsufficient (NSF) fee, which is known to be $28.51 to the $155 bounced check yields an interest rate of 18.39 percent per occurrence. If this were extended to an annualized interest rate, the resulting APR becomes 478 percent.
Moreover, it is often the case that if a consumer encounters one bounced check fee, there will be additional outstanding checks that will experience the same fee again. For example, if a consumer has five outstanding checks and the largest one is cashed by the bank first, the other four remaining could bounce the account. As a result, four fees of $28.51 will be applied totaling $114.04.
"The debate over payday loan fees and bounced check fees is too often based on an apples to oranges comparison," said Lehman. "The public deserves to have an accurate comparison of the two financial services and the real costs associated with them. Consumers will act in what is in their best interest but they must be provided with accurate information before they can make the choice that best fits their needs."
A copy of Contrasting Payday Loans to Bounced Check Fees is available online at http://www.consumercreditresearchfoundation.com.
Dr. Tom Lehman is Associate Professor of Economics at Indiana Wesleyan University, Marion, Indiana and recently co-authored Payday Lending: A Practical Overview of a Growing Component of America's Economy, published by Consumer Credit Research Foundation based in Washington, DC.
Consumer Credit Research Foundation was formed to support economic research into the availability, choice and cost of consumer credit for moderate- and middle-income Americans and to apprise the public of such research. http://www.consumercreditresearchfoundation.com
Consumer Credit Research Foundation - examining the economic issues around payday lending.
Payday Loans
Sell House
Pigeon Forge Cabins
SMS.ac
Sell House Fast
Sell my House
Flow Meter
Stop Foreclosure
Phoenix Arizona Relocation
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