Chasing Fees, Banks Court Low-Income Customers

April 26, 2012
New York Times P. A1

Large U.S. banks increasingly are striving to land low-income customers with alternative products that can bear high fees -- including prepaid cards, check-cashing services, and short-term emergency loans -- partly because such products are largely excluded from recent financial regulations. Kimberly Gartner of the Center for Financial Services Innovation says unbanked or underbanked borrowers are a $45 billion untapped market. Consumer advocates and some federal regulators worry that banks are corralling lower-income people into expensive financial options when lower-cost alternatives are available. "It's a disquieting development for poor customers," according to former Federal Reserve Bank examiner Mark T. Williams. "They are getting pushed into high-fee options." There is particular concern about the payday loans now being offered by a select group of banks, which, according to the Center for Responsible Lending, in some cases add up to a 300 percent annual interest rate. Prepaid cards, criticized for steep fees and poor disclosures, are another big movement in banking. The Mercator Advisory Group estimates that consumers held about $29 billion in prepaid cards in 2009, and the market is expected to total $90 billion by the end of 2013. The Consumer Financial Protection Bureau said it is looking at whether banks breached consumer protection laws in marketing some of these products. "We look at alternative financial products offered by both banks and nonbanks through the same lens -- what is the risk posed to consumers?" said CFPB head Richard Cordray. "Practices that make it hard for consumers to anticipate and avoid costly fees would be cause for concern."
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