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PayDay Loans are a Better Deal for Consumers than Overdraft Fees

Moebs Study Shows That Banks/Credit Unions Could Increase Volume and Revenues with Lower Overdraft Fees 7/12/10

For Release Upon Receipt 
Contact Patricia Harden
Mon., July 12, 2010
[email protected]

(Lake Bluff, IL) July 12, 2010 -- Consumers who are frequent users of overdraft  (OD) fees at banks and credit unions could save money by bridging their cash gap with a 14- day payday advance loan, rather than paying checking account overdraft fees, according to a recent national study by Moebs Services, an economic research firm in Lake Bluff, IL.
 “The average amount overdrawn on checking accounts by about 70 percent of consumers, according to the General Accounting Office and the FDIC, is less than $100,“ said Michael Moebs, economist and CEO of Moebs $ervices. “Consumers who use a payday advance loan for $100 or less will pay an average of $17.97, which is 33 percent less than the $27.01 it costs for an overdraft of that same amount from a checking account,” he explained.  “For consumers who struggle to meet their financial obligations, the savings between the two is significant.”

An opportunity for banks
 “Based on these study findings, we believe that banks and credit unions should consider reducing their OD fees to less than $20,” said Moebs.  “Because 90 percent of a bank or credit union’s revenue comes from OD fees, they could increase their revenue and their volume by lowering OD fees.  This would enable them to maintain their revenues at the 2009 level.” 

According to Moebs, there are 19 million consumers who use payday lenders, compared to 13 million consumers who use overdrafts.

“Since a checking account is required to qualify for a payday loan, banks and credit unions already have these consumers as customers” explained Moebs.  “If banks and credit unions lowered their overdraft fees and reached out to consumers who are frequent users of payday loans, more consumers would opt to use the overdraft services of their financial institution.  This would secure future brand loyalty, and be a good source of additional revenue,” said Moebs. 

Payday loan process
A payday loan can be acquired at a payday loan branch office or on the internet.  An application needs to be filled out with a least three pieces of identification:  government picture ID, paystub, and copy of a bank statement.  Once all customer information is verified, the customer is given immediate funds in exchange for a post dated check that is cashed on payday.

The payday lending industry operates in 37 states, and serves 19 million customers, most of whom are middle-class Americans. 

About Moebs Services
Michael Moebs is an Economist and the CEO of Moebs $ervices, headquartered in Lake Bluff, IL.  Since 1983, Moebs Services has been collecting primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition and analyzing the data in a counter intuitive manner which provides simple solutions to complex issues.

Written By: vhorizon
Date Posted: 8/5/2010
Number of Views: 3130