5 ms·

The article's title promises a provocative contrarian view but it turns out that the UPenn professor is only "right" in a narrow sense that the criticizers of "

by jasode 10y ago

The article's title promises a provocative contrarian view but it turns out that the UPenn professor is only "right" in a narrow sense that the criticizers of "payday lenders" are not even talking about. To the professors point... yes, a traditional bank's service fees can exceed the fees at check cashing stores. For example at Chase Bank, if a poor person lets the balance drop below $500, they will be charged $30. (To many of us, $500 doesn't sound like much but to people living paycheck-to-paycheck, it can be very hard to stay above that amount every month.) Account holders on the lower tier also get limited check writing privileges. Some account fee waivers also don't kick in unless their paychecks are direct deposit. However, many laborers still get paper paychecks so they can't meet the bank's criteria for the reduced fees. The criticism that the professor's math doesn't tackle is the ~400% interest rates on payday loans: http://www.paydayloaninfo.org/facts http://www.paydayloaninfo.org/facts Yes, $0.89 money order at RiteCheck is less than $5 charged by Chase Bank but that's not what the criticism of predatory practices is about.

ghufran_syed 10y ago
I once ran out of cash when driving across the country with my family, because the bank froze my account 2 days after supposedly clearing a check and telling me I had access to my funds. My bank told me it might take up to two weeks to get access to my funds. I would have been much better going to a check cashing place, because of their clarity and transparency. I almost ended up having to sleep with my kids in the car, or in a park somewhere, but we managed to find a pawn shop that was open 24 hours. We paid around $60 to borrow $1000 for two weeks, which is a high rate compared to a regular bank loan if you can get one. But it was the difference between my kids sleeping in a hotel and being homeless. People who want to shut down these kind of services have good intentions, but the effect of their paternalism would be to reduce choice for poor people, and make their lives worse.
- waqf 10y ago
  Credit cards seem tailor-made for this case, because they give you four weeks or so interest free and then start with the usurious rates.
- John23832 10y ago
  The evidence shows that situations like yours are not how payday check cashing businesses are usually used. Often people get into a revolving door of debt. Sure, there are situations where they can be used for good. Generally however, they are not. Rather than accepting, and let's call them what they generally are, predatory check cashing loans, for the VERY limited good that they do, why not work on improving the clearing house system so that your check can get through a real bank in a reasonable amount of time?
  - skookumchuck 10y ago
    How does removing options for people make them better off?
    - heeen2 10y ago
      Hard drugs, drunk driving, driving without seat belts are not legal options that make people better off. Buying food below certain levels of quality for cheap is not an option.
      - deleted 10y ago
        [deleted]
    - lwyr 10y ago
      By removing bad options. Like cars without seatbelts, or toys with lead in them.
      - skookumchuck 10y ago
        The trouble with removing "bad" options is when you leave no other options.
        John23832 10y ago
        That makes no sense. We're not talking about lesser options that are slightly off the norm. These are bad options that are clearly outliers.
ams6110 10y ago
So why do people continue to use bad actors like Chase Bank. How many examples do we need of the way they bleed fees and penalties from people who can least afford it. There are local banks and credit unions that have much better deals.
- adanto6840 10y ago
  Switching banks is a PITA. I maintain typical accounts at >5 banks, most of them are well-known national brand name banks though a couple are smaller regional/local banks. I've long intended to close down several of them -- especially one of the oldest ones, which hasn't had a branch in my resident state for roughly 10 years now -- but I then realize it's a low value proposition. I've got some small ACH or card-based auto-pay stuff on it that I'd have to track down and move, and all that. Not to mention the 'fear' I have that I'll be traveling and get locked out, so may as well have other options. I realize it's probably not as bad as I think, but frankly I'd almost just rather just keep my "doors open" so to speak, even if it is a small money drain. BTW -- I very recently paid $10 for a Cashier's check at a national brand bank, wasn't thrilled about it, but paid it. That said, their online presence/capabilities make up for it (especially vs many regional/small banks). I just wish SVB did personal accounts. They rock.
  - vertex-four 10y ago
    In the UK, we have a service called the Account Switching Service - which redirects all your incoming and outgoing payments for you, with a guarantee that it's done properly. Shame the US goes for lock-in.
    - JadeNB 10y ago
      > In the UK, we have a service called the Account Switching Service Please tell me that people unhappy with this call it a pain in the ASS.
  - Symbiote 10y ago
    A few years ago, Britain made rules that forced the banks to make it easy to switch accounts. This was to improve competition between banks, and hence improve service and prices for customers. I used it. It required closing the old account, but everything was done automatically: bill payments transferred over to the new account, the remaining balance, pending cheques, and any incoming electronic transfers for the next 13 months. They also sent some kind of electronic message to my employer, updating my bank account details on their system. https://www.gov.uk/government/news/2-million-switches-in-2-years https://www.gov.uk/government/news/2-million-switches-in-2-y...
cperciva 10y ago
~400% interest rates on payday loans If you count fees as "interest", banks charge 400%+ interest rates on overdrafts, too.
mschuster91 10y ago
> or example at Chase Bank, if a poor person lets the balance drop below $500, they will be charged $30. How on earth is that legal? I understand that there are overdraft fees or that the banks want interest on the debt if your account goes negative, and that's fine when those fees are not predatory. But fining people for having too low positive cash balance?! That's theft.
- jasode 10y ago
  >But fining people for having too low positive cash balance?! That's theft. I just used casual shorthand when I wrote "charged $30". The way the bank's Terms of Agreement spells it out is that every account has a monthly service fee -- e.g. $30. However, if you maintain a minimum balance above $500, they will waive that fee. (Many in the HN demographic would have a higher tier account such as "Premiere/Preferred/Platinum" and those also have minimum balances of $20000 required to waive the monthly service fees. It's still the same idea, but a bigger number.) The banks word it in positive terms ("above/waive"). I just wrote it the opposite way ("below/charge") to match how people psychologically perceive it. For many people seeing the minus-$30 deducted from their account, it certainly feels like a penalty/fine instead of a +$30 bonus for all the other months that they were above $500.
  - mschuster91 10y ago
    Whoa, that's still theft, even if you explain it this way. My bank (Sparkasse), for example, charges 8€ a month and that's already perceived as "near to extortion" - and the increase to 8€ actually led to massive public outrage. Many "direct banks" (i.e. banks without physical offices, services via ATMs and Internet only) are entirely free here.

by jasode 10y ago

ghufran_syed 10y ago

I once ran out of cash when driving across the country with my family, because the bank froze my account 2 days after supposedly clearing a check and telling me I had access to my funds. My bank told me it might take up to two weeks to get access to my funds. I would have been much better going to a check cashing place, because of their clarity and transparency. I almost ended up having to sleep with my kids in the car, or in a park somewhere, but we managed to find a pawn shop that was open 24 hours. We paid around $60 to borrow $1000 for two weeks, which is a high rate compared to a regular bank loan if you can get one. But it was the difference between my kids sleeping in a hotel and being homeless. People who want to shut down these kind of services have good intentions, but the effect of their paternalism would be to reduce choice for poor people, and make their lives worse.

waqf 10y ago
Credit cards seem tailor-made for this case, because they give you four weeks or so interest free and then start with the usurious rates.
John23832 10y ago
The evidence shows that situations like yours are not how payday check cashing businesses are usually used. Often people get into a revolving door of debt. Sure, there are situations where they can be used for good. Generally however, they are not. Rather than accepting, and let's call them what they generally are, predatory check cashing loans, for the VERY limited good that they do, why not work on improving the clearing house system so that your check can get through a real bank in a reasonable amount of time?
- skookumchuck 10y ago
  How does removing options for people make them better off?
  - heeen2 10y ago
    Hard drugs, drunk driving, driving without seat belts are not legal options that make people better off. Buying food below certain levels of quality for cheap is not an option.
    - deleted 10y ago
      [deleted]
  - lwyr 10y ago
    By removing bad options. Like cars without seatbelts, or toys with lead in them.
    - skookumchuck 10y ago
      The trouble with removing "bad" options is when you leave no other options.
      - John23832 10y ago
        That makes no sense. We're not talking about lesser options that are slightly off the norm. These are bad options that are clearly outliers.

ams6110 10y ago

So why do people continue to use bad actors like Chase Bank. How many examples do we need of the way they bleed fees and penalties from people who can least afford it. There are local banks and credit unions that have much better deals.

adanto6840 10y ago
Switching banks is a PITA. I maintain typical accounts at >5 banks, most of them are well-known national brand name banks though a couple are smaller regional/local banks. I've long intended to close down several of them -- especially one of the oldest ones, which hasn't had a branch in my resident state for roughly 10 years now -- but I then realize it's a low value proposition. I've got some small ACH or card-based auto-pay stuff on it that I'd have to track down and move, and all that. Not to mention the 'fear' I have that I'll be traveling and get locked out, so may as well have other options. I realize it's probably not as bad as I think, but frankly I'd almost just rather just keep my "doors open" so to speak, even if it is a small money drain. BTW -- I very recently paid $10 for a Cashier's check at a national brand bank, wasn't thrilled about it, but paid it. That said, their online presence/capabilities make up for it (especially vs many regional/small banks). I just wish SVB did personal accounts. They rock.
- vertex-four 10y ago
  In the UK, we have a service called the Account Switching Service - which redirects all your incoming and outgoing payments for you, with a guarantee that it's done properly. Shame the US goes for lock-in.
  - JadeNB 10y ago
    > In the UK, we have a service called the Account Switching Service Please tell me that people unhappy with this call it a pain in the ASS.
- Symbiote 10y ago
  A few years ago, Britain made rules that forced the banks to make it easy to switch accounts. This was to improve competition between banks, and hence improve service and prices for customers. I used it. It required closing the old account, but everything was done automatically: bill payments transferred over to the new account, the remaining balance, pending cheques, and any incoming electronic transfers for the next 13 months. They also sent some kind of electronic message to my employer, updating my bank account details on their system. https://www.gov.uk/government/news/2-million-switches-in-2-years https://www.gov.uk/government/news/2-million-switches-in-2-y...

cperciva 10y ago

~400% interest rates on payday loans If you count fees as "interest", banks charge 400%+ interest rates on overdrafts, too.

mschuster91 10y ago

> or example at Chase Bank, if a poor person lets the balance drop below $500, they will be charged $30. How on earth is that legal? I understand that there are overdraft fees or that the banks want interest on the debt if your account goes negative, and that's fine when those fees are not predatory. But fining people for having too low positive cash balance?! That's theft.

jasode 10y ago
>But fining people for having too low positive cash balance?! That's theft. I just used casual shorthand when I wrote "charged $30". The way the bank's Terms of Agreement spells it out is that every account has a monthly service fee -- e.g. $30. However, if you maintain a minimum balance above $500, they will waive that fee. (Many in the HN demographic would have a higher tier account such as "Premiere/Preferred/Platinum" and those also have minimum balances of $20000 required to waive the monthly service fees. It's still the same idea, but a bigger number.) The banks word it in positive terms ("above/waive"). I just wrote it the opposite way ("below/charge") to match how people psychologically perceive it. For many people seeing the minus-$30 deducted from their account, it certainly feels like a penalty/fine instead of a +$30 bonus for all the other months that they were above $500.
- mschuster91 10y ago
  Whoa, that's still theft, even if you explain it this way. My bank (Sparkasse), for example, charges 8€ a month and that's already perceived as "near to extortion" - and the increase to 8€ actually led to massive public outrage. Many "direct banks" (i.e. banks without physical offices, services via ATMs and Internet only) are entirely free here.