Traditional Banks Have Squeezed the Life Out of Consumer Lending
While the U.S. economy continues struggling to show signs of life, U.S. and international banks are tightening the noose on consumer lending, spurring the growth of payday loans. Prognosis for an economic turnaround early this year rapidly turned to fantasy as the January 2009 quarterly Federal Reserve Board Bank Survey showed bank consumer lending practices were squeezed even further. Times of economic pressure certainly prove that banks are among the first to act. Any small banking industry ripple of policy change can cause a tidal wave in the financial community.
53 U.S. banks and 23 U.S. branch offices of foreign banks responded to the Reserve Board in their study which concluded that the bank industry standards have further reduced consumer credit limit, increased interest rate floors and consumer credit review for short term loans. The banking crunch has inevitably led to the phenomenal growth of a second tiered loan sector including cash advances and payday loans, which are less stringent on their approval standards on unsecured personal consumer loans.
Domestic & International Banks Further Reduce Credit Limits
Between 45-60% of bank survey respondents reported raising credit score thresholds in order to approve consumer loans or new credit card applicants. As the credit score threshold increases, more of the general population requiring a short term loan falls below the new cutoff point. More banks indicated that they reduced the number of installment and short term loans approved for consumers who did not meet the increased requirements. In essence, banks want to provide short term consumer loans for their select few. Banks are pulling through this recession economy by not taking any chances with ordinary consumers. Joe Average definitely needs to seek out his money elsewhere. ... click here to read the rest of the article titled "Survey Shows Bank Lending Practices Create Need for Payday Loans"
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