The New York Times Buck's Blog is reporting that some big banks are starting to offer payday-like loans. After reading the article, I was scrolling the comments and saw that Cindy from Baltimore wrote:
There is no support for this. Our society has declared war on the poor at every front and it diminishes all of us as people.
I really couldn't disagree more. There is absolutely a place in our society for these types of financial instruments. Short term cash crunches happen, and it's good that reputable banks are starting to offer this service in addition to the other payday loan establishments.
How does having big banks offer payday-like loans help us?
- It legitimizes the financial instrument. Some people see payday loans as something only offered by predatory lenders. I know that big banks have a bad reputation right now, but they do have a little more credibility than the average loan shark.
- It de-stigmatizes the user. I have a friend who needed a loan like this once. He was embarrassed (and a little scared) to go to one of those neon-lighted establishments with bars on the windows. Now, with big banks offering this service it would be much easier and feel much safer to go through the process.
- It creates competition. By adding new, big players to the game, there is the potential that APR will fall for payday loans as a result of these institutions competing for business.
As anything other than a short-term solution, these loans are definitely bad for your personal finance, but in a time of need, they can be a lifesaver. So, although I tend to abhor the tactics of big banks in general, I truly think their entry into this market could be a positive.
What do you think? Ever taken out one of these loans? How did you feel? Would having the option of turning to a big bank bring you more ease?