The reaction to the new loans has been mixed. Nick Bourke, director of consumer credit at Pew Charitable Trusts, which supports making affordable small loans available to consumers with appropriate collateral, said the new loan looked promising. When the loan program was announced, he tweeted that it was a ‘game changer’. Pew opposes payday loans, but has called on traditional banks to offer smaller, less risky loans to help consumers when they encounter financial potholes. The US bank’s loans include some features that Pew recommends, Mr Bourke said, such as limiting loan payments to 5% of the borrower’s monthly income and avoiding overdraft fees.
Although loans are relatively expensive, they are far cheaper than the alternatives like payday loans or auto title loans.
“It’s a great first step,” said Bourke.
According to Pew research, 12 million people a year take out payday loans. If borrowers cannot make the payment, they often pay a higher fee to renew the loan. Payday borrowers, Pew found, spend an average of $ 520 in fees to repeatedly borrow $ 375.
New US Bank loans cost $ 12 for every $ 100 borrowed, with payments automatically debited from a customer’s account. The fee is $ 15 per $ 100 if a customer declines automatic payments.
“This is a high cost loan,” admitted Ms. Heitman, adding that the bank was “transparent” about the fees. The bank has received many positive reviews from customers, she said, who say they find the terms of the loan easy to understand.
The Center for Responsible Lending, an advocacy group, was skeptical of the value of the US bank’s offer, saying loans are still too expensive for most low-income people, many of whom are already in debt. and have little leeway to take on Suite.
“This is a step in the wrong direction,” said Rebecca Borne, the centre’s senior policy adviser.
And while the bank won’t let the customer’s checking account be overdrawn by a loan payment, she said, the payment itself could bring the account balance down so low that subsequent bills would cause overdrafts. .