Saturday, January 6, 2007

A federal bank regulator is trying to get state-chartered banks to offer short-term, small-dollar loans in an effort aimed directly at the payday loan industry. The Wichita Eagle reports.

Last month, the Federal Deposit Insurance Corp. proposed that the banks it regulates offer the loans, generally $1,000 or less, citing a “huge demand” for them but “far too few low-cost options available.”

“It’s a way to provide alternatives to [faxless payday loans],” said FDIC spokesman David Barr.

Some local bankers are skeptical that offering such loans will be cost effective for them, while others think it can be done profitably for a few banks.

Fast payday loan lenders said they welcome the competition, but don’t think that banks will be able to compete effectively with them.

“It lets the consumer choose among a variety of products,” said Steven Schlein, spokesman for the Community Financial Services Association of America, a trade group that represents the payday, or deferred presentment, industry.

Rocky Waitt, president of Rose Hill Bank, thinks it would be tough for his bank to offer short-term, small-dollar loans profitably.

He’s not swayed, either, by the FDIC’s enticement that it would look favorably at banks when they are examined for their lending practices to minorities and disadvantaged businesses. The FDIC regularly examines banks for lending to those groups under the Community Reinvestment Act.

Banks are heavily governed by state and federal rules, and typically have caps on the annual percentage rate they can charge - well below the 391 percent APR some quick cash loan lenders charge.

” (Payday lenders) don’t have near the red tape that we do,” Waitt said.

But Mike Daniels of Kansas State Bank of Manhattan said he has seen models of how banks and credit unions are offering such loans profitably. But those models require that a bank have “large numbers to get economies of scale.”

“If you have that right type of customer base, it definitely could work,” he said.

Daniels, whose bank plans to open a Wichita branch this year, said it’s still uncertain whether Kansas State Bank will offer the cash advance loans.

Bruce Harris is owner of A-OK Inc., which owns and operates five A-OK Pawn and Retail stores in the Wichita area. Part of his business includes providing payday loans.

Harris said he thinks a lot of banks don’t want to offer payday cash loans because that would impact the money they get from bounced check fees.

“They probably don’t want to do short term loans” for that reason, he said.

Also, he said, his company has gotten efficient about issuing payday loans and doesn’t have the same processes as a bank. His is a much quicker process, Harris said.

This entry was posted on Saturday, January 6th, 2007 at 5:40 pm and is filed under Kansas.