5 Ways Banks Hurt the Poor

April 15, 2014
MarketWatch 
JPMorgan Chase Chairman and CEO Jamie Dimon contends that regulation has made it difficult to provide credit to many consumers. An opinion piece by David Weidner, however, argues that banks are "far more predatory than regulation aimed at keeping the financial system safe."

Weidner notes that financial institutions have harmed middle- and low-income Americans in a number of ways, including through credit card fees and increased interest rates. Another culprit is foreclosure, with more than 4 million borrowers nationwide losing their homes between 2007 and 2011. Homeowners lose equity and damage their credit; plus, foreclosure is a tax liability, since it is considered an unpaid debt.

Payday lending is another objectionable action by banks. Although they have been limiting their offerings, many institutions still finance other lenders and support them through payroll deductions on direct deposits, according to the Consumer Financial Protection Bureau (CFPB). Borrowers often get caught in a cycle of high interest that reaches a mean annual percentage rate of 322 percent. Two-thirds of payday borrowers took out more than seven loans and were indebted more than 40 percent of the year, the CFPB has said.

Consumers also may be harmed by overdraft fees, which the Center for Responsible Lending says cost Americans more than $16 billion in 2011, at an average of $35. Two-thirds of the fees are paid by account holders who are charged more than six fees annually. CRL has accused banks of manipulating transactions in an order that collects the most overdraft fees.

Bankruptcy can also harm consumers, as a code change no longer allows those filing for personal bankruptcy to wipe the slate clean. They must repay at least part of their debts, including credit cards. It is also easier to force debtors into Chapter 13, which restructures debt.









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