If we had a vibrant economy where delinquincies were receding and employment was roaring back (NOT!), it would make sense that banks would take on a little more risk. The evidence is clear, though. We have recovery in share prices, but the budgets of households are not back where they were. Credit card charge-offs are up, and unemployment is still high.
That is why it seems odd that some of our largest banks have decided to offer a new payday-loan product. US Bank, Wells Fargo, and Fifth Third are three banks that are rolling out short-term loan programs where APRs exceed 120 percent.
Did I mention that each of these banks was given a huge TARP investment? True, US Bank and Wells have already repaid their TARP funds, and Fifth Third indicates that it intends to do the same in the next quarter.
I think the appearance of these new products reveals how this credit crisis is hurting middle America. Consumers don't want to use loan products like payday loan-priced advances on their next paycheck. They would prefer to use credit cards (interest rates of as much as 29 percent) or a line of credit (perhaps 12 percent.) These new payday products cost at least 120 percent. People aren't dumb. They are taking this bad deal only because banks aren't offering something more reasonable.
Let's review the new payday products.
Fifth Third's Access Now: "when you need money but you don't have time to wait." The cost is simple - $1 for every $10 advanced. Funds are repaid with the next direct deposit. If your