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Economic Recession Fuels Big Banks’ Relations with Payday Lenders

 

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By: Javi Calderon
Economic Recession Fuels Big Banks’ Relations with Payday Lenders

The credit and mortgage crises that almost caused a complete economic breakdown in the U.S. have forced big banks to shift the focus of their lending partnerships. The uncertainty and instability of the home loan and credit markets have led banks to tighten their grip and make more conservative decisions about offering loans. Fewer loans means less income for these banks. On the other hand, the economic recession has fueled the growth of the payday loan market, and with other profit avenues struggling, financing payday loan companies has been a reliable and stabilizing boost for these banks that were on the verge of collapse not too long ago.

Many critics of the payday loan industry are upset by the relationship between big banks and payday loan lenders. These critics feel that while people are struggling to find home loan mortgages and loans, big banks are financing the payday loan industry that preys on these same tax payers who kept them alive with the multi-trillion dollar federal bailout in 2008. Critics see the relationship as irresponsible, and many, including an organized group in Iowa, are protesting for Wells Fargo (who finances around 1/3rd of the entire payday loan industry) to stop financing payday loan lenders.

What the critics don’t realize is that, A) without this income from the payday loan industry the banks would struggle again, B) having less stringent lending practices for home loans is what got the banks in trouble in the first place, and C) cash advance loans serve a vital role as a final option for people who live paycheck-to-paycheck and find themselves in an unexpected financial bind. If there wasn’t such a high demand for payday loans, the industry wouldn’t exist, and without that option many people would have nowhere to turn when an unexpected set-back occurs.

This country needs the banks to be stable in order for our economy to be stable. Cutting ties with the payday loan industry over a misinformed and misled moral obligation would only weaken them both and put them both in jeopardy. With a stable economy we can hopefully then begin to create new jobs and rebuild public trust in the banking and economic systems. Then the lending markets will stabilize. Until then the payday loan industry and their partnership with big banks is a necessity while the country deals with the uncertainty and the aftermath of the recession.  

 

 
 
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