Testimony delivered by David M. Silberman, Associate Director for Research, Markets, and Regulation at the Consumer Financial Protection Bureau, in front of the U.S. Senate's Special Committee on Aging, provides the prepaid card industry with more evidence that prepaid card products are a better financial services alternative than payday loans and advances.
In the July 24, 2013, testimony, Silberman said that research conducted by the CFPB into how consumers use small-dollar payday loans showed that, over a 12-month period, 48 percent of payday borrowers took out 11 or more loans, and 52 percent of deposit advance borrowers obtained advances totaling $3,000 or more per borrower.
Additionally, 14 percent of payday borrowers took out 20 or more loans in that 12-month period, with the same percentage of deposit advance borrowers receiving over $9,000 per borrower. Routinely, the heavier borrowers get advances on paychecks without having first repaid the previous loans, Silberman said.
The CFPB found that lenders typically charge a fixed fee of $15 per $100 for a payday loan and $10 per $100 for a deposit advance. Repayment of the loans is timed to borrowers' next regular receipt of cash, most often a paycheck, Silberman said.
The director noted that the CFPB's research underscored a correlation between the use of deposit advances and the occurrence of overdrafts and nonsufficient fund (NSF) fees. The bureau found that 65 percent of deposit advance borrowers incurred at least one overdraft or NSF fee during the research period, and that the number of overdraft or NSF fees increased as the amount of advances increased. "Light users" of these products incurred an average of seven penalties, while "heavy users" averaged 16.
The CFPB's findings highlight the difficulty faced by users of such products when they ring up debt over time and struggle to repay the loans and advances. Silberman said, "[I]t appears to be hard for many consumers to repay the loan and meet other expenses without experiencing another short-fall, taking out another expensive loan, and/or overdrawing an account. Financial products that trigger a cycle of debt can exacerbate the precarious balance of consumers' financial lives."
Search engine giant Google Inc. is notorious for abruptly shuttering programs. The latest fatality is Google's closed-loop gift and loyalty card feature of Google Wallet. On Aug. 8, 2013, Google said in an email sent to Google Wallet users, and published on the tech site AndroidSPIN, that the wallet users would soon be unable to redeem virtual gift and loyalty cards via the near field communication (NFC)-enabled payment feature of Google Wallet.
Google said gift and loyalty card functionality would end Aug. 21, but that NFC-based payments for credit and debit cards supported by Google Wallet would not be affected. "We're working with retailers on other options for gift and loyalty card redemption within Google Wallet, and are excited to share them with you soon," Google said.
The announcement follows Google's move to discontinue the Google Prepaid Card feature of Google Wallet in October 2012. Google said the physical prepaid card, which was a component of the initial Google Wallet strategy announced in May 2011 and rolled out that September, was eliminated because of reportedly slow user adoption.
The American Express Co. reported it will add its Serve prepaid card to the Isis Mobile Wallet. The addition gives Isis, the NFC-based mobile payment venture created by AT&T Mobility, T-Mobile US Inc. and Verizon Wireless, a way for financially underserved individuals without access to credit and debit cards to use the mobile wallet to pay bills online and conduct money transfers.
"Linking the platforms will allow millions of people to conveniently and inexpensively manage and move their money," said Dan Schulman, Group President, Enterprise Growth at AmEx.
Isis Chief Executive Officer Michael Abbott added, "Our relationship with American Express Serve underscores our mutual commitment to providing consumers with choice and value in mobile payments." Isis is expected to launch its service nationwide before the end of 2013.
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