Released: August 12, 2008

FDIC explores alternatives to payday loans

Source: Jordan Weissmann, Washington Post (Free Registration)

Banks around the country have issued more than 3,000 small loans as part of a pilot program by the Federal Deposit Insurance Corp. exploring alternatives to payday lending.

Banking industry experts are calling it a significant first step in an attempt to find a less-predatory way to provide short-term credit. Payday loans require borrowers to sign over their next paycheck in return for a cash advance of a few hundred dollars with an interest rate often exceeding 390 percent.

Since January, the FDIC has tracked lending programs at 31 small to mid-size banks throughout out the United States, with the goal of figuring out how to make the loans profitable enough for more commercial banks to start marketing them.

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