W.J. Clinton and A. Schwarzenegger: Beyond Payday Loans

[question everything]

The Wall Street Journal


Beyond Payday Loans
By WILLIAM J. CLINTON and ARNOLD SCHWARZENEGGER
January 24, 2008; Page A17

The American dream is founded on the belief that people who work hard and play by the rules will be able to earn a good living, raise a family in comfort and retire with dignity. But that dream is harder to achieve for millions of Americans because they spend too much of their hard-earned money on fees to cash their paychecks or pay off high-priced loans meant to carry them over until they get paid at work.

Here is one initiative that can unite progressives and conservatives as well as business leaders and community activists: helping the "unbanked" enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market. This will put money in the pockets of individuals and grow the economy. And it won't cost taxpayers a dime.

Imagine the economic and social benefits of putting more than $8 billion in the hands of low- and middle-income Americans. That is the amount millions of people now spend each year at check-cashing outlets, payday lenders and pawnshops on basic financial services that most Americans receive for free -- or very little cost -- at their local bank or credit union. Over a lifetime, the average full-time, unbanked worker will spend more than $40,000 just to turn his or her salary into cash.

(snip)

This year, California will become the first state in the nation to launch an effort to help unbanked residents open starter accounts -- the first step into the financial mainstream. Approximately 11% of California households, including 25% of Latino and African-American households, do not have a checking account. And nearly half of households in the state don't have a savings account. In coordination with the Federal Deposit Insurance Corporation, we will partner with financial institutions to increase the supply of starter accounts that work for unbanked consumers and banks. We will form regional coalitions of financial institutions, mayors and community groups to market accounts and help the unbanked build financial literacy. And we will build on work already being done in San Francisco, where city officials, working with banks and credit unions, have already signed up 11,000 individuals who previously had no checking or savings account.

The William J. Clinton Foundation's Economic Opportunity Initiative will help more people enter the financial mainstream by supporting the work of California -- as well as that of mayors in Boston, Los Angeles, Miami, New York, Providence, San Francisco, Savannah and Seattle, each of whom are spearheading their own efforts. It will also work to engage additional cities and states, and the private sector.

(snip)

Mr. Clinton was the 42nd president of the United States. Mr. Schwarzenegger is governor of California.

URL for this article:
http://online.wsj.com/article/SB120113610711211855.html

[AX10]

1. kick

[water]

2. Most banks have free checking...

I don't really understand why people use those 1% check cashing places.

[David__77]

3. Because they messed up.

The ones I know anyway. They bounced a lot of checks and owe money to banks. Haven't paid it off, and go to the joints instead.

[mulsh]

8. most banks require 2 forms of ID, usually a credit card and a

minimum deposit in order to establish a checking account. Also my financial institutions will wave some requirements if an applicant will set up direct deposits but people with spotty employment can't do that easily. Having gone with out a bank account occasionally I can tell you that banks here in CA are downright unfriendly to people with out a credit card. I don't see any mention of financial institutions relaxing these requirements. Also even banks that issue payroll checks will not cash those check for people with out an account unless they pay a fee. People living pay check to pay check can't set aside enough money to meet the minimum deposit. Many either can't qualify or are suspicious of credit cards.

When I didn't have a bank account I tried to establish one at the following banks here in Oakland: Washington Mutual, Citi, Wells Fargo, Bank of America. none of them would deal with me because I didn't have a credit card. I finally found a small, local savings & loan which allowed me to start a checking account

[JTFrog]

4. From the guy who repealed Glass-Steagall.

In my opinion, BC opened the door to our current economic disaster by effectively repealing the long-standing prohibitions on the mixing of banking with securities or insurance businesses and thus permitting “broad banking.” He undid what FDR put in place after the great depression.

$40,000 over a lifetime for unbanked workers? And bank charges are any fairer? My bank charges me anytime I use my ATM card if it's not a branch machine. Sometimes I get charged as much as $4 to get a $20 bill out of the machine. Need to cancel a check? $20-40 bucks. Overdraw (your fault or not) another $33 a day until it's cleared up. That is all thanks to no more Glass-Steagal.

Why do they want to give them free accounts? So they'll put their money in the bank. Why do they want the money in the banks? Because the banks desperately need the money as they have no solvency.

I hope this works out for those who need the help. I know it will work out for the banks.

[BB1]

5. The big solution to all this is of course:

Get your money out of the bank. Not just you, but everybody. And all at the same time, too. Make the bankls explode. See the stockbrokers jump out their windows. let them eat cake and choke on it.
And too add insult too injury: use your creditcard like hell is coming. Stock up on jewellery, gold, diamonds, anything that retains value over long periods of time. (And buy some cattle, too)

That way you resolve the bank's solvability problem (they'll have no bank left, which means they don't have to have solvability anymore), and you get a payback for all the money they charged you without providing an actual service.

When the People take on the Banks, the People must win. And after that, the People need to set up banks with requirements of 99% solvability. No kidding around anymore. Time for hardworking people to earn their money, this time.

[juno jones]

6. To cash a paycheck written on my employer's account

costs me five dollars at his very own bank branch (US Bank). After they cash it they always say, "If you had an account here this would be free..." So you're extorting me to get me to get an account with you? Not attractive, I'm afraid. I'm tired of hidden fees and other shite when dealing with bank accounts. I'm trying to go back to cash only, paying my bills by money order. That way, I don't get screwed over.

[flashl]

7. The payday sharks need to go away ...

But, this effort is not in the interest of non-bankers.

[jbho]

9. Clinton and Schwarzenegger: Beyond Payday Loans

Right now, payday loans are a cheaper alternative to bounced checks, and restart fees on utility bills. If a business can provide cash advances to high-risk consumers at lower rates, then those new businesses should try to compete in the market. Price fixing and usury limits do not have the intended effect of forcing legal lenders to lower their fees. Instead, legislating price caps simply forces legal lenders to stop offering loans to certain consumers.

In other words, if legislators cap the fees on short-term loans or bounced check fees, then lenders and banks simply stop offering credit to a large segment of the market. This is not a solution, as persons living paycheck to paycheck will resort to "unregulated" lenders. Prohibition failed in other arenas, driving people to unscrupulous providers, and the same occurs when legislators outlaw payday loans. Typically, when states eliminate payday lending, the consumers turn to unregulated foreign-based Internet payday lenders, as their only alternative to bounced check fees and utility restart fees.

See the following article from the Federal Reserve Board regarding How Households Fare after Payday Credit Bans, for more information: http://www.newyorkfed.org/research/staff_reports/sr309.html
It would be far better to regulate and monitor short-term loans, and to find ways to encourage competition, then to simply legislate these consumers into the hands of unregulated offshore Internet lenders.