U.S. Bank has launched ‘Simple Loan‘ that aims to compete with payday loan lenders. Consumers can borrow up to $100-$1,000 in increments of $100. The loans are repaid over three months. The fee structure is that you pay $12 with automatic payments or $15 with manual payments per $100 borrowed. This means with automatic payments you’re paying an APR of more than 70%.
Back in October 2017 the Office of the Comptroller of Currency (OCC) rescinded guidance that made it more difficult for banks to offer these types of loans. In May of this year they encourage banks to reconsider this small-dollar lending. My main issue with these types of loans is that those who are least able to pay the high interest rates and fees are the ones most likely to use them. This can often result in a cycle of debt that people are trapped by and have very little hope of ever escaping.
and they call themselves the worlds ethical bank.
I am not a big movie goer but once a minister in a sermon used a few minute movie clip and then resumed his sermon by stating that sometimes just like $14 or $16 could make the difference in someone’s life when there is a small need and that by helping someone, it gives them hope to try a bit harder to keep going and try to make life work again.
That’s what I think about when I see these kinds of predatory lending practices.
Sure, it sounds terrible for people with great credit and a drawer full of rewards credit cards. But there’s a large group of people in this country who rely heavily on payday loans to get by, and people often need to take out multiple payday loans because they can’t keep up with the ridiculously short repayment plan. So something like this that offers a significantly lower interest rate and a repayment term of three months rather than 14 days probably feels like a godsend.
If I was in a crunch like this, I suppose 70% APR is always better than a more typical payday loan service of 300% APR.
It’s not right, but it’s better.
Why doesn’t this violate usury laws?
Why would it? Please point out the laws that this rate might violate? If any, there might be a state law and the product wouldn’t be available in that state.
It does in some jurisdictions. You need to check by state to find out which ones have a ban on payday loans.
https://paydayloaninfo.org/state-information
Which usury laws? Every jurisdiction has different usury laws, it’s very possible this product isn’t available in some jurisdictions.
Payday loans are generally prohibited where I live (Connecticut) but I don’t know the exact interest rate cutoffs to tell you if this product is legal in Connecticut.
For the idiot in the room, can someone show me the calculation you did to get the APR?
Manually calculating the APR on an amortizing loan is best left to the slide rule guys. For everyone else, use a loan calculator on the web to confirm that the APR is accurate.
Bank deals such as this are what allow us to have good deals on our Altitude Reserve and FlexPerks cards (albeit not as good as we’d like). Don’t get too pissed off on these…
Not really, they are independent departments. U.S. Bank doesn’t run a loss leader on the Reserve/FlexPerks cards to get customers in for pay day loans, that doesn’t make any sense
Why don’t people just MS then rather than pay off the card used right away use it to pay whatever bill. Then in two weeks when you would have had the money to pay off the payday loan use that in turn to pay back whatever you used on the Credit Card for the MS? Just a thought.
Seeing as the loans are only $100-$1,000 I’d assume most people can get a CL of at least 1k, even if combined between two cards with $500 limits.
I bet the majority of people taking advantage of such a loan don’t have even one credit card. If they did, they’d just carry a balance.. the APR is MUCH lower, even on the worst of them. Unless they’re already maxed out, in which case, MS won’t help much.
That may work in some situations but I would say most situations people would actually go get a payday loan for wouldn’t.
Examples:
Rent/Mortgage
Pay a Credit Card Bill (to avoid interest and $35 late payment fee)
Heating/Energy Bill (mine don’t accept CC)
Pay off a Bill that doesn’t accept CC payments.
It’s not that hard to get approved for a $500 CC I’ve seen approvals with 500 FICO Scores, or even no FICO Score (New to Credit).
Sometimes no credit score is better than a shitty credit score because lenders at least dont know if youve f*cked up on paying your debts.
Ive read some people purposefully take out payday loans even if they could use their credit card because payday loans are reported differently to the credit buearus. Apparently if you default on them, the hit to your score isnt nearly as bad.
Ideally you wouldnt have to make either of those choices.
The argument here is that people should understand the terms. If the terms are THAT terrible, they shouldn’t take the loan. If you’re in a tough spot, these small loans can be a huge benefit, when nobody else will extend you credit. Also, calling this 70% APY is a little misleading, though factually accurate. This is a 3 month loan. Representing that in APY form is always going to look out of whack. Paying $12 to borrow $100 for $3 months isn’t that terrible. Keep in mind, most that need this type of loan have terrible credit scores. It’s not like they can just write a check on their 9% CLOC and call it a day.
it “looks out of whack” because it *is* out of whack.I guess a loan shark who wants a 20% vig on a one week loan isn’t so bad, after all it’s only 20%.
Sharks!!