Group says bank overdraft fees rival payday loans
Tuesday, July 29, 2008
LITTLE ROCK - As co-founder of Arkansans Against Abusive Payday Lending, Hank Klein was one of the first in the state to cry foul about the industry's use of the term "fee" to describe its charges for short-term loans.
What those lenders were charging was actually interest that when calculated as such grossly exceeded Arkansas' 17 percent usury limit, the group said. After years of legal battles, the state Supreme Court and the attorney general made the same interpretation, and the industry is now being ushered out of the state.
A similar debate is taking place nationally about the use of the word "fee" by financial institutions regarding charges they assess for paying a check that normally would bounce, commonly marketed as "bounce protection."
Klein is not advocating for either side in Arkansas like he did for the payday lending discussion, but when asked, the former credit union executive said he interpreted the bank policy differently from that of payday lenders.
"I think it is a fee. That's what the Federal Reserve calls it today," said Klein, a former CEO of Arkansas Federal Credit Union. "Now, if the Federal Reserve changes that and calls it interest, then it will be interest."
A national consumer advocates group is lobbying the Fed to do just that.
"Some of our largest financial institutions are hiding behind a smokescreen of misleading terms and murky practices that encourage costly overdrafts," said Eric Halperin, director of the Center for Responsible Lending's Washington, D.C., office.
Consumers nationwide pay $17.5 billion in overdraft fees every year, according to a study the center conducted - more than the amount of money banks "loan" - a term the center considers key - consumers for the transactions.
A number of scenarios can set up such a situation, but at its simplest, a bank covers a check or debit card transaction even when there is not enough money in a customer's account to cover the transaction. Doing so allows the consumer to avoid fees from the merchant for a returned check. However, the bank charges the consumer for the service.
Banks recoup the amount of the transaction plus a charge averaging $34 from the account holder's next deposit, a practice Halperin's group considers as predatory as payday loans.
Such a parallel is not even considered in banking circles, according to Luther Guinn, deputy commissioner at the Arkansas State Bank Department.
"We consider it a fee that a bank can legally charge," Guinn said.
His statement mirrors assertions by payday lending officials that they, too, charge fees, not interest, and therefore are not subject to the state's usury law.
However, the state Supreme Court has ruled that payday lenders charge interest on short-term loans, often running into triple digits when converted into an annual percentage rate, well above the state's usury limit...
Source : http://www.nwaonline.net
|
