In the past, customers relied on checking accounts and credit cards as two regular major sources of currency. However, enactments such as the Overdraft Fee Legislation and Credit Act, putting limitations on policy and enumeration of interest rates and fees on banks, stifling the checkings and cards industry, customers seek alternative loans to replace this gap. We take a look at what other loan alternatives are there?
Alternative loans are on the rise due to two recent financial regulations, the Fee Legislation and Credit Act of 2009. Below, we discuss these enactments and their subsequent consequences.
Overdraft Protection Now an Explicit Choice Option
An overdraft occurs when a customer pays for an item using a checking account that has an available balance that is less than the cost of the item. An overdraft fee is usually around $30 and occurs at every purchasing instance where an overdraft coverage would be needed to cover the cost of the item. For example, if a person has $50 in a checking account, attempts to purchase $100 worth of groceries, and then runs over to the mall and purchases a $20 t-shirt at one store, and then a $3 coffee at the local Coffee Bean, this person could be charged $90 worth of overdraft fees in total, if the coverage was included in his banking contract.
Overdraft protection has been put under fire because of the amount charged per occurrence combined with it's stealth implementation without the customer's consent. On several accounts, customers were enrolled in overdraft protection and charged per transaction, unknowingly. In addition, when surveyed, many customers would have declined the coverage if given a choice. Consequently, the Overdraft Fee Legislation's objective to stop undesired overdraft protection and its associated fees by requiring explicit permission from the customer, has resulted in less overdraft protection usage. Although this option is still there, this service should only be utilized by the customer's choice.
Credit Card Limitations Cause Banks to Turn Customers Away
Credit card late fees occur when a customer does not make their payments on their assigned due dates. When compounded with the existing interest rate fees, credit card associated penalties can add up. The new Credit Act of 2009 imposes caps on interest rates as well as other regulations that make imposing frivolous fees. Because of these limitations, credit card companies have tightened up lending because of the need to reduce credit risk to risky borrowers. Therefore, a large number of consumers with not-so-perfect credit can no longer qualify for credit cards.
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