Boost In Big Bank Fees Will Likely Fuel Rise In Use Of Credit Unions, Other Alternative Lenders: Reuters Analysis

Alternative finance firms, from credit unions to online and pawn lenders, are gaining traction as banks turn off the tap for easy cash and start charging fees for services that customers have had for free.

Some 60 million Americans -- close to a fifth of the adult population -- were under-banked or un-banked in 2009, according to the Federal Deposit Insurance Corp. That number is likely to rise as banks choke off free checking, and adjust to new rules that cut into their revenue.

Bank of America, Citigroup Inc, J.P. Morgan Chase, Wells Fargo & Co, PNC Financial, Suntrust and others are beginning to charge for once-free services, making a bank account more of a luxury to those living on a tight budget.

"Credit unions are an alternative source for the kind of services a bank provides," said Professor Lawrence White of New York's Stern School of Business.

"I'm hoping they would see the un-banked as part of their mission. That would be the most socially worthwhile thing they could do."

Credit unions, which are effectively not-for-profit co-operatives, are stepping up to offer cheaper alternatives to the short-term, high-interest loans provided by payday lenders.

Demand for short-term, small-dollar loans from credit unions rose 52 percent in the second quarter, National Credit Union Administration data showed. More aggressive selling by these unions will have seen that rise further in the third quarter.

Livonia, Michigan-based Co-Op Services Credit Union has begun a "Shred My Card" campaign offering $105 to people who open a free checking account with a direct deposit and who cut up their bank debit card.

"We want consumers to know they can fight back against big banks by saying 'no' to more fees. They should give credit unions a close look," Bill Cheney, Chief Executive of the Credit Union National Association, said in a statement.

The credit unions are also lobbying to have their business lending cap more than doubled to 27.5 percent of assets so they can better target small businesses unable to access bank funding.

NET LENDERS

Among the crop of alternative finance companies opening their wallets to cash-strapped consumers through the Internet are BillFloat, Pawngo and Prosper.com.

Online lender BillFloat, backed by Ebay's PayPal, offers a 30-day loan of up to $225 to consumers looking to pay their bills.

The service, started two years ago, has an annualized interest rate of 36 percent, making it far cheaper than payday loans, where rates can be as high as 500 percent.

"We want to be nothing like a payday loan and nothing like a bank loan," BillFloat Chief Executive Ryan Gilbert told Reuters.

He said BillFloat, which has relationships with more than 3,000 billers, including utility PG&E and telecoms giant AT&T, was seeing at least double-digit growth every month.

Pawngo.com, an online pawn lender backed by Daylight Partners, Access Venture Partners and Groupon-backers Lightbank, offers up to $1 million to small business owners with collateral -- a shift from normal pawn operators where small loans of less than $1,000 are the norm.

"We helped a gentleman who needed money to put into his venture fund. We loaned him $50,000 on several pieces of jewelry and normally he would have gotten that from a bank, but the banks just aren't there for those loans right now," said Pawngo CEO Todd Hills, a 25-year pawn industry veteran.

Pawngo, which has offered pawn loans on Louis Vuitton bags and Solitaire diamond rings, is attracting better-off clients, who have seen banks pull back their lines of credit.

Peer-to-peer lending site Prosper.com, which has raised more than $70 million in venture funding, connects people who want to borrow money with those who want to invest. It has more than $262 million in funded loans since it launched in 2006.

The growing demand for newer financing options is attracting venture capitalists, who are backing new, Internet-based entrants.

LOOKING TO LIST

Demand for these services is also spurring alternative financial firms to tap public markets for the cash they need to grow.

Regional Management Corp and Community Choice Financial have filed for initial public offerings this year, and Cash America said it would spin off its online lending unit, Enova International, in a $500 million IPO.

Investors are likely to buy into these IPOs, despite the regulatory overhang, as these companies are immensely profitable.

"These companies could make a unique industry cluster in the IPO market; they have revenue, they make money," said Josef Schuster, founder of Chicago-based IPO research and investment firm IPOX Schuster.

Other listed pawn and payday lenders like EZCorp, First Cash Financial, and DFC Global Corp have

bolstered their pawn lending operations and are adding pre-paid debit cards to the services they offer.

(Reporting by Jochelle Mendonca and Sharanya Hrishikesh in Bangalore, Editing by Anil D'Silva and Ian Geoghegan)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[jufrgs]

05:07 PM on 10/19/2011

I have not delt with Banks for more than 10 years, and I have no reason to ever deal with a bank as long as there are credit unions.

[kolblh]

02:10 PM on 10/19/2011

The Bankers are laughing all the way to the Bank.

[lydatarz]

02:05 PM on 10/19/2011

It was reported yesterday that Bank of America made over a 6 Billion profit during the last quarter! Isn't this the bank that is charging $5.00/month for debit card use and requires it's clients to have at least $1,500.00 in their accounts? Hopefully, this isn't one of the banks that went to Obama with their hat in their hand looking for a bailout! And, with tax payer money!!!!! I say we raid their vaults and get some of our money back!!!!!

[jrp1947]

01:56 PM on 10/19/2011

Americans need to remove as much money as they can from the national level banks and support either small local banks or credit unions. I do and I have removed everything from larger banks and gone to two credit unions. It is not a lot but between that and not using any credit cards I hope to add my little bit to the growing protest to bring this companies down and starts giving Americans a fair break. It is time for us to revolt and take back the forty percent of this country's wealth that less than one percent of the population controls. But remember that the officials you elected to Congress and your state legislatures let or helped this to happen and they need to be booted from office next year. Change the. laws that work against you

[czmars]

01:52 PM on 10/19/2011

you out there that do not have a clue about whatg banks and wl.street does to your daily lives. change your habits. xl them out. join a credit union or a non=for=profit institution. there are plenty of them. you just got to look and search. today with hi-teck, internet young people should have no problem. get educated. get street wise. not wall street dummies. corporate greade has reached the top. and will continue if we the people let it go and hurt us and future generation of americans. thank you

[giftsthatpurr]

01:47 PM on 10/19/2011

After reading many of the posts on this thread I am SO encouraged by people's responses to the Banking Rip-offs. Our power has always been in numbers, and the backlash from Banking's unscrupulous practices and making consumers pay for Banker's mistakes has been felt by the "numbers" - US! I am also in process of changing my checking and savings to a Credit Union. I should have done it a long time ago, but better late than never!!!

[czmars]

01:44 PM on 10/19/2011

when i worked for jpmorgan back in the 70's just across of the stock mkt on wall street as a young man then i was told by co-workers then, that the oldman jp told the federal government what to do then. and accordingly the fed would get together with the oldman a shooot the brise. then the other thing said to me and it is a fact that" this whole banking system in america is based in the trust people have in these institutions" so. if we the 99 percent feel that we do not have anymore trust in these institutions. that we have no more trust in the 1 percent capitalist in this country. then, is time to change our basic laws. reform the tax=code and change it. reform way profit is taken away from the 99 percent. referm all government with the ballot-box. we the majority have the power of the vote. then lets start today and vote out as many as we gop/teabaggers out of the civil service process as we can. lets put democrats and independents in all city,state and federal government positions. and lets re-elect pres.barack hussein obama. thank you

[cesarvis]

01:37 PM on 10/19/2011

Comerica has been great to me, have had them for years, no BS fees, no issues and plenty of access. If you dont like credit unions there are still alternatives out there

[clintnapril2]

01:26 PM on 10/19/2011

Money talks... Credit has an echo. Pay cash for everything you can and try to owe no-one.

[tapptime]

01:17 PM on 10/19/2011

I would not join BOA if they paid me $5.00 a month.

[rabban192]

01:25 PM on 10/19/2011

Gerate.

I only wish that all consumers would just do busness with companies that the consumer agreed with the actions of the company, and no do business with companies that do not take actions that the consumers agree with.

[colloc]

12:46 PM on 10/19/2011

I have been with Wells Fargo for years. Next month they are going to start charging me $15 a month just for having an account. Guess who is switching banks?

[aangelu697]

12:31 PM on 10/19/2011

I support the occupy wall street protesters. Thay have hit the nail on the hear. Wall steet and the bankers are motivated by GREED.

[manmi1]

12:31 PM on 10/19/2011

Luckily we still have a few alternatives to these nasty banks. Keep looking until you find one... credit unions have usually been a pretty good source. Let's see if maybe we can bring these big banks down to street level.

[Jesse Martinez]

12:29 PM on 10/19/2011

Several years ago out son had a B of A account and he was living with us (father/mother), he had a gotten divorce. He live with us a fe months then moved out. He pay off his B of A account. Unknown to him a check ($5.??) which he had written was finally send in and the bank send sent the notice to our home. We did know where he has gone. Several other ntoices from the bank came in and I open the letter. I reaslize a bank needs to make a profit and it should. But the interest rate for that month was 2000%. I went to B of A and stated teh situation and it was useless. I went ahead and pay it myself! Not even the mafia charges that kind of rate, when it started B of A. .

[clpblank]

12:20 PM on 10/19/2011

NOV 5th. the day we all need to cancel our corporate bank accounts of all types and move to a small local bank or better yet a C.U. take back your money and your life. Nov 5th remember the date.

[missyr1005]

01:06 PM on 10/19/2011

I would definitely start the process NOW...it takes a couple weeks to get this done, especially those who do online banking/bill paying. RUN, DON'T WALK to small community banks (check them out thoroughly), or a local Credit Union. Start taking control of your hard earned money, and make it work for you, not them!!!!