Tags: Banks | Low | Income | Borrowers

NYT: Banks Court Low-Income Borrowers, Charge High Fees

Friday, 27 Apr 2012 07:51 AM

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An increasing number of the nation's large banks are aggressively courting low-income customers with alternative products that can carry high fees, products that were largely untouched by recent financial regulations.

“It is a disquieting development for poor customers,” Mark T. Williams, a former Federal Reserve Bank examiner, told The New York Times. “They are getting pushed into high-fee options.”

Banks contend they are offering a valuable service for customers who lack access to traditional banking and claim these products are offered at competitive costs.

However, the Consumer Financial Protection Bureau, a new federal agency, says it is examining whether banks are obeying consumer-protection laws when marketing these alternative products.

Alternative bank loans can be costly. When these loans come due, banks automatically withdraw from the customer’s checking account the amount of the loan and the origination fee — typically $10 for every $100 borrowed — sometimes overdrawing accounts and generating overdraft and other fees that translate into an annual interest rate of more than 300 percent, according to the Center for Responsible Lending.

Some federal regulators and consumer advocates worry that banks may also be steering those at the lowest end of the economic ladder into relatively expensive products when lower-cost options exist at the banks or elsewhere.

The Federal Deposit Insurance Corporation estimates that about nine million households in the country don't have a traditional bank account, while 21 million, or 18 percent, of Americans are “underbanked,” meaning that they have access to some but not all traditional bank services.

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