Academic journal article ABA Banking Journal

Misplaced Angst

Academic journal article ABA Banking Journal

Misplaced Angst

Article excerpt

Without the power to know people's motives, which no person has, other than his own, you're bound to have situations like the current debate over direct deposit advance loans. Much as with that other lightening rod, overdraft protection, good and bad uses coexist. In fact, it's hard to think of anything about which that wouldn't be true in the world of finance--credit cards, swaps, mortgages, ATMs, and, for that matter, money.

But to the point at hand: deposit advance programs are short-term loans in advance of the arrival of a government or other scheduled payment. They fill a need as old as money itself--an empty pocket and a pressing need for cash. Such loans are a better iteration of an admittedly motley collection that includes pawn shops and payday lenders. It doesn't take a genius to recognize that when people desperately need cash there is potential for abuse. All the more reason to have a better solution.

A sudden need for cash is often very legitimate: a car quits working; catastrophe strikes; unexpected medical expenses crop up. Some needs come and go quickly. Others may linger for months. It's doubtful anyone in government or elsewhere would deny the legitimacy of such needs. They may disagree on how best to meet them. But a deposit advance loan is certainly a valid option.

There are, of course, other less savory needs for short-term cash: a gambling habit, trouble with the law, domestic problems, in-and-out of work, spendthrift lifestyle, etc. That's the underbelly of life. And there's a lot of it around. It's easy to sweep such needs aside, but they are real, too, and are easy for bad actors to exploit.

The latter type of needs may not be a primary market for a bank, but every bank is affected by such needs directly or indirectly. …

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