Unhealthy Rise in Consumer Debt Blamed on Loose Bank Loan Restrictions
By J.J. CameronPayday Loan Writer
Across the nation, consumer debt is rising. It's growing at a faster pace this year than at any time between 2001 and 2005.
While it may be tempting to blame an outbreak of faxless payday loan applications for this problem, cash advances alone cannot explain why American debt increased at a seasonally adjusted annualized rate of 5.7 percent in June. Our debt is growing twice as fast as our economy.
It's occurring despite a quintupling of rates by the Federal Reserve Board. What gives?
According to The Knoxville News Sentinal, the lending standards of many financial institutions are at fault - and the newspaper is NOT talking about predatory payday advance lending.
The head of an industry-specific lending division of a major regional bank recently explained that his competitors had lowered the amount of collateral they required borrowers to put up or were eliminating certain loan guarantees. The result?
A price war among competing banks; proof that online payday loan providers certainly aren't the only shady lenders out there. The above maneuver also provided credit to borrowers who, only a few years ago, would not have qualified for these loans.
In the current interest-rate environment, the profitability of bank lending typically declines. One reason is that the spread shrinks between banks' cost of funds and the rates they can charge borrowers. Yet with the recent exception of mortgage activity, bank-loan profits remain high - and are still increasing. How?
Because of an increase in loans. If your margins decline, you're tempted to make it up with more volume. And if the pressure to increase quarterly earnings is great enough, you increase your lending volumes by dipping down to a lower-quality borrower.
In other words, banks aren't helping their clients very much. They're often making financial matters worse. With all the negative attention providers of no fax payday loans receive, critics may also wish to take a close look at banking activity.
