Sheila C. Bair

Posted by on Sep 20, 2006 in Quotes

“Depository institutions (banks and credit unions) have the tools and infrastructure that they could deploy to offer their customers low-cost alternatives to payday loans… Perceptions of high operational costs and credit losses appear to be exaggerated based on the limited experience of institutions that have successfully offered payday loan alternatives to date. Perceptions of regulatory hostility also appear to be unfounded. Our interviews with regulators indicated unanimous agreement that development by depository institutions of their own low-cost payday loan alternatives would be positive from a public policy standpoint and likely warrant CRA (Community Reinvestment Act) credit.”

According to Professor Federal Deposit Insurance Corporation (FDIC) Chairman Sheila C. Bair, banks and credit unions can offer low-cost alternatives to payday loans. Unfortunately, most choose not to…

Why?

One reason may be that offering cheaper alternatives to payday loans would cannibalize huge profits some banks and credit unions already make on bounced check protection:

“A more substantial impediment to banks and credit unions entering this market is the proliferation of fee-based bounce protection. In a sense, fee-based bounce protection is a “payday loan alternative” whose costs, if used as credit, can far exceed that of a payday loan. Many banks and credit unions will not view it as in their interests to offer lower-cost, small dollar credit options such as LOCs and closed-end installment loans, if they can reap much higher, per transaction fee income from bounce protection.”

Professor FDIC Chairman Sheila C. Bair was Dean’s Professor of Financial Regulatory Policy at the University of Massachusetts Amherst. She was sworn in as the 19th Chairman of FDIC in June, 2006, for a five-year term.

Source: Low-Cost Payday Loans: Opportunities and Obstacles (University of Massachusetts / The Annie E. Casey Foundation)

Related Quote: Sheila C. Bair

To find out more about why you should avoid bounce protection, please read Bounced Check Protection in our Payday Loan Alternatives category.

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