By: Javi Calderon
Alternative Lenders Gaining Popularity as Banks TightenLending Policies
In the wake of the economic recession of the late 2000’s banks started enacting some semblance of responsibility in their lending practices. As financial experts gleaned in the aftermath, big banks played a major role in the recession. Knowing that any mortgage loans that they approved would be sold off and packaged into mortgage-backed securities, banks were approving loans to borrowers who would never be able to afford the payments they were agreeing to.
As the turmoil unfolded, the banks were reprimanded, dragged through the muck, and set straight. As a result, banks have tightened their lending restrictions, leaving many Americans with nowhere to turn for a loan. When before banks were simply concerned with profits, today they are more interested in saving face (profits are still a very close second). Thus, they keep under-qualified or subprime borrowers off their books.
Millions of Americans have been affected by the great recession. Many have lost wages, jobs, homes, retirement funds – just when these people where in the most dire need of financial services, major banks turned their backs.
Of course, our economy – even during a recession – works by the process of supply and demand. Very quickly, financial products for the common American in need of quick cash were everywhere. Products that have been around for years, payday loans, car title loans, pawnshop loans, were everywhere. In fact, the payday loan industry is one of few that is booming across the board.
Cash advance lenders are doing so much business that today banks and credit unions are developing and offering products to compete in the market. The big banks, however, have recently been dealt another blow.
As of October 1st, new regulations went into effect that placed a cap on how much banks could charge merchants for processing their debit card transactions. This cap has cut heavily into banks profits, and they have been “forced” to compensate by adding fees to services that used to be free. Suddenly, simply owning a checking account or a debit card is becoming expensive.
These ticky-tacky fees will surely cost banks some customers. Defectors will start turning more and more to the services of credit unions, online finance companies and other alternative solutions.