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Emergency Credit: Coming Soon to a Bank Near You?

By Lalita Cloz / March 31, 2018

From The Wall Street Journal


There is a segment of the population that does not have access to low-cost, readily available, short-term sources of debt and credit. Those who have credit cards borrow money to make their purchases. Other consumers don't have the necessary credit history. Instead they turn to alternatives including overdrafts and high cost payday loans.


Payday loans are exactly what they sound like. The proceeds need to be repaid within a very short period of time or the consumer rolls over or takes out another loan. With the combination of fees and interest rates, costs can run into triple digits. Lenders in this segment point to the risks associated with lending to this demographic as cause.


Regulators are proposing changes that might provide alternatives to payday loans.  Installment loans are one proposed alternative. Individuals pay back loans in installments instead of all at once. The regulatory changes would reverse the 2017 rule requiring payday loans be made on the basis of ability to repay standards. 



1. What is a payday loan and what are the interest rates associated with them?

2. How do installment loans that might be offered by banks differ from payday loans or direct advance loans?