IMG_2089After the federal bail out, many banks were enforced with new regulations that caused them to be less capable of making money off those they lend to. Therefore, banks have resorted to a new money making strategy. They are now lending money to payday loan companies who in return lend the money to customers and charge high interest. This allows for banks to increase their profits.

Payday loan companies are great ways for banks to make money because they service people that normally do not have the ability to borrow money directly from banks. Therefore, banks use payday loan companies as a middleman to making profit.

Although banks are benefiting from the high interest rates given by the payday lenders, a report titled Predators’ Creditors believes that this arrangement between banks and payday lenders should stop. This report urges banks such as Wells Fargo, Bank of America, and JPMorgan Chase to stop the billions of dollars in credit that is being given to payday loan companies. Predators’ Creditors stands by the notion that the payday loan companies take advantage of the economic instability of urban and rural low income working families. Most of these payday loan companies are found in the lower-income areas and are very costly due to the interest rates they charge.

Bank of America however claims that all the payday loan companies “have good compliance, consumer disclosure and collections practice.” They furthermore stated that they “strive to do business with only the most responsible of these lenders.” Bank of America ensures the public that they only do business with a small number of the most reliable and trustworthy payday loan companies.

According to the nonprofit Social Compact, areas such as South Florida are exposed to a great deal of payday loan companies. Their easiest sources for cash include check cashers, pawn shops and payday loan centers.  For example, in Miami there is an area known as Little Havana where for every 10,000 people there are 11 of these financial institutions. However, in an area known as Coconut Grove, which is a more wealthy location, there are absolutely none.

Ken, Thomas, a Miami-based independent bank consultant and economist believes that the banks method of making profit off of the payday loan companies is “absolutely lucrative.” Banks continue to use payday companies as a method of making money. It has been discovered that over the last few years, banks have given $1.5 billion in credit to these companies. Furthermore, there are about 22,300 payday loan companies around the nation that together make $30 billion in loans annually.

Obviously the banks are gaining good profit off the high interest rates of the payday loan companies. However, there are those that think that the whole system takes advantage of the people that resort to these companies for money. By examining these different views, it is clear that this arrangement between banks and payday loan companies has caused many people to have mixed opinions regarding the situation.

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