Five years ago, when The Care Bair womanned the helm at the FDIC and was prodding banks to make payday-like loans to poor consumers, but to cap those loans at a 36 percent APR, most banks who experimented with the products were scratching their heads, trying to figure out how to make money on small loans made at those rates when the borrowers posed such a high default risk. These days, when banks of all sizes are strapped for income-yielding products and are dipping appendages bigger than than their pinky fingers into the icy waters of small loans, left-leaning propaganda rags main stream newspapers like The New York Times are aghast at how "big banks" are "preying" on "the little people."
An increasing number of the nation’s large banks — U.S. Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers like Mr. Wegner with alternative products that can carry high fees. They are rapidly expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees.
Predictably, consumer advocates, including the chart-topping consumer band "Recess Richie and The Jackboots," are threatening to inspect these products with a bias-detecting electron microscope of political correctness to ensure that banks don't actually provide a needed service to lower-income consumers at a price that permits the bank to make a profit.
The Consumer Financial Protection Bureau, a new federal agency, said it was examining whether banks ran afoul of consumer protection laws in the marketing of these products.
“We look at alternative financial products offered by both banks and nonbanks through the same lens — what is the risk posed to consumers?” said Richard Cordray, director of the bureau. “Practices that make it hard for consumers to anticipate and avoid costly fees would be cause for concern.”
Buried in the middle of the piece is this disconcerting news for Cordray and his fellow-travelers.
Still, in an April survey of prepaid cards, Consumers Union found that some banks’ prepaid cards come with lower fees than nonbank competitors.
Wait a minute! If banks are jumping into these products and offering them at rates that are lower than those offered by non-bank predatory payday lenders, wouldn't it be logical to expect that this might eventually force the non-bank small-loan lenders to lower their prices in order to compete? Given most banks' funding advantage over most of their non-bank competitors, isn't it likely that if the banks are able to find a pricing model that allows them to expand this business while lowering existing rates and fees, this would ultimately benefit low-income consumers? Therefore, shouldn't consumer advocates, including the "We're Just Here To Help You" crowd from the KGB CFPB, think that banks entering this business is a potentially good thing for consumers? Shouldn't they encourage, rather than discourage, this trend?
Personally, I think bankers are thinking about getting into this line of business need to have thick hides, because it's a business in which the more successful you are in offering the right type of products and services to your targeted customer base, the greater your chance of being determined to be a discriminatory thug, fit only for being stretched on the rack, then drawn anhd quartered.
Mr. Wegner, the U.S. Bank customer, said that once he mentioned that he needed a bank account, an employee started selling him prepaid cards, check cashing and short-term loan options. Mr. Wegner, who makes about $1,200 a month, said that he felt like a second-tier customer.
“It was clear that I was not getting the same pitches that wealthy clients would,” he said. Since that initial visit, Mr. Wegner said he avoided the branch so he was not approached with offers. “I go through the drive-through now,” he said.
Next year, Mr. Wegner will be complaining that the bank never offers him any credit options at any price. He'll moan about having become invisible.
Mr. Wegner, wealthy clients have high incomes and substantial assets to pledge as collateral and, therefore, pose much less repayment risk to the bank. Of course they're not going to be offered products and services they won't purchase, just as you won't be offered products and services for which you do not qualify under prudent underwriting standards, the kind mandated by safety and soundness standards that are imposed upon banks by law. This is called "living in the real world."
It's obvious that there's an element of the chattering classes that desires that banks be run as public utilities that parcel out credit as mandated by politicians and bureaucrats at rates and fees deemed "fair" by government committee. Until that system's in place, banks will be damned if they do and damned if they don't.