Banks Try To Seem Cool By Acting More Like Payday Lenders


Various and sundry anti-poverty activists are always looking for ways to get the "unbanked" to take their money out of their mattresses and put it in a gosh darned checking account like the rest of us. Well, congrats. Sort of. A headline in today's New York Times blares, in part, "Banks Court Low-Income Customers." But the first chunk of that headline is the real explainer: "Chasing Fees, Banks Court Low-Income Customers." 

It turns out that—gasp!—the 2010's revamp of the nation's major financial institutions, the Dodd-Frank Act, did not exactly vanquish banking products that cost more money if you don't happen to have very much money. The idea was to discourage banks from (over?)charging for overdrafts, bounced checks, and the like.

Instead, traditional banks starting hanging out with the goth kids and smoking behind the music wing started offering less traditional products, such as short term loans or pre-paid debit cards precisely because these products are subject to less regulation:

[Traditional banks and credit unions are] joining the prepaid card market. In 2009, consumers held about $29 billion in prepaid cards, according to the Mercator Advisory Group, a payments industry research group. By the end of 2013, the market is expected to reach $90 billion. A big lure for banks is that prepaid cards are not restricted by Dodd-Frank financial regulation law. That exemption means that banks are able to charge high fees when a consumer swipes a prepaid card.

In other words, the regulations pushed banks to act less like their respectable selves and more like their disreputable competitors. Nice work, Congress.

Check out the whole story on the rise of payday lending and the fall of free checking.