NEW YORK (TheStreet) -- Payday loans continue to be a blight on the nation's economic health, but one large bank says it's committed to doing something about the problem.
According to the Pew Charitable Trusts, 12 million Americans take out payday loans annually, shelling out $7.4 billion, at 20,000 storefront shops and banks across the U.S.
Only 14% of payday loan consumers say they can afford to pay back the pricey loans, Pew says, with the average payday loan averaging $400 in repayment rates in two weeks.
"Payday loans are marketed as an appealing short-term option, but that does not reflect reality," says Nick Bourke, a Pew analyst on small-dollar loans. "Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term. The loans initially provide relief, but they become a hardship. By a 3-to-1 [ratio], borrowers want more regulation of these products."Now JPMorgan Chase (JPM) says it is rolling out policies that shield bank customers when payday lenders with access to their bank accounts try to raid them for "inappropriate" loan repayments:
- If payday lenders or others keep trying to withdraw payments from customer accounts with insufficient funds to cover them, Chase will charge only one returned-item fee in a 30-day period. Chase says the change will become effective by the end of May.
- Chase says it will target potential misuse of the Automated Clearing House system -- including misuse on the part of payday lenders or other companies -- and report such practices to the National Automated Clearing House Association.
- Chase says it has an existing policy to always follow a customer's instructions to stop a payment. The bank says it will solidify communication efforts and beef up additional training on those policies.
- Chase also announced it will make it easier for customers to close their accounts when there are open pending charges on a payday loan, including payday lender payments. "If we believe those pending charges are inappropriate, we won't honor them," the bank says in a statement.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV