Tags: dick bove | payday | loans | poor

Bank Analyst Dick Bove to Moneynews: Payday Loans Are Treating the Poor Unfairly

Monday, 06 May 2013 11:44 AM

By Glenn J. Kalinoski and David Nelson

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Payday loan companies treat the working poor in an unfair manner, according to bank analyst Dick Bove.

"Not enough people are making enough income and, therefore, when the end of their pay period develops, they don’t have the money to meet what are basic needs, and, therefore, they go seeking funds and they wind up at places like payday loan companies," Bove, an analyst with Rafferty Capital, told Newsmax TV in an exclusive interview.

"The interest on a two-week loan is somewhere between 20 to 25 percent. Most people everywhere believe that this is usurious, it's unfair."

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The specifics regarding how a payday loan is repaid were also discussed.

Editor's Note: Save, shop and invest like an insider! Our experts lead the way each month in The Franklin Prosperity Report. Click here to learn more.

"As long as the individual has his or her job, she'll be able to pay it back because it's going to be automatically deducted from the paycheck when the paycheck hits the bank," he said. "These are all direct deposit accounts."

Bove also was concerned about the ability of borrowers to pay back such a loan.

"If the question that is raised to the banks is can Joe Jones or Jane Jones pay back a loan which has a 300 percent annualized rate of interest on it, the answer to that is pretty clear: They can't," he said.

Bove also addressed the economic conditions that lead consumers to utilize payday loans.

"At least 40 percent of the households in the United States are living in quiet desperation because they just don’t have enough income," he said.

"Another 20 percent are getting by, but they're not generating excess savings," he said.

"The upper 40 percent are making huge amounts of money and their incomes are growing rapidly. You've got to get to that 60 percent and figure out a way to get their incomes higher because if you do that, you'll take away all of these predators whether they're banks or other entities that are going after these people and hitting them for excessive amounts of money."

The discussion turned to banks that don’t make the loans. Instead, they allow customers to write overdrafts on their accounts.

"An overdraft is like a payday loan and the bank is charging a fee for the overdraft," he said.

"Why not charge a reasonable rate of 10 percent or seven percent or eight percent on that loan? The reason the banks don’t do that: No. 1, they have a strong profit motive; No. 2, those loans go on to default and the default rate is so high that in order to make the business profitable, the banks charge an unusually higher rate of interest."

Editor's Note: Save, shop and invest like an insider! Our experts lead the way each month in The Franklin Prosperity Report. Click here to learn more.

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