You’ve probably read about PayDay Loans. You walk into a loan office, promise to repay in two weeks out of your next pay check, and walk out with money. Pretty easy, right? Sure, at 300-700% interest!
Illinois took action recently to cut interest rates on these payday loans. One operation, which advertised heavily on Star 105.5, charged 782%. All you had to do was borrow $200 for 14 days. They didn’t even try to hide the 782% rate, not that they should or could. It was right there on their loan form.
Could something be worse? Could our trusted banks stick it to their customers at such rates? How about at even higher rates?
Banks decided to start charging customers rates far higher than that. They apparently get away with it by calling their flat charge for an overdraft a Service Charge. Instead of bouncing your check or denying your debit-card transaction, they approve it, loan you the money, and hit you up for the fee.
Their rationale? “We’re protecting your reputation by not bouncing your check.”
I remember the last time I bounced a check. It was in 1955. I made a deposit and went across the street to write a check. Although it was a small check, I didn’t know that you had to wait seven days for a deposit to clear. That was the first, and last, time I wrote a bad check. Heck, many of the readers here weren’t even born then!
And now? Go ahead; write your bad check for $10.00. It’ll clear your bank and they will zing you at least $28.00. Let’s say your next paycheck deposit covers that $10.00 and pays off your $28.00 “service fee.” What is the true APR for the use of $10.00 for less than 14 days? I could probably figure it out, and perhaps one of you readers will. Whatever it is, it’s unconscionable and should be illegal.