Ben pointed me to a great article in the Fort Worth Star-Telegram. The article profiles a consumer that racked up $579 in bank overdraft fees on $205 in checks and debits. Unfortunately, this isn’t an unusual case — millions of people pay overdraft “protection” charges each month. It’s the banking industry’s “dirty not-so-little secret” — they make around $20 billion (yes, billion) every year in overdraft charges.
At $30 to $40 each, these fees are almost always more expensive than payday loans and other types of short term loans. For example, if the person featured in the Star-Telegram article had taken out a payday loan to cover her overdrafts, the total fee would have been less than $50 instead of over $500. If you do the math (and I have) U.S. consumers would save billions of dollars annually if every overdraft was replaced with a payday loan.
Short term lenders are criticized for their high interest rates, yet one of the primary reasons the short term loan industry exists is because it’s a cheaper option for cash-strapped consumers.