The FDIC has announced plans to investigate banks offering payday loans.  Their specific area of concern is the expansion of payday loan offerings to include third parties.  More and more big banks are offering payday loans, although they like to call them by different names.  Wells Fargo, who has been doing this for over a decade calls them “direct deposit advances.”

The FDIC said the investigation is as a result of a letter they received in February 2012 from “Americans for Financial Reform” that was signed by more than 200 organizations and individuals that asked the FDIC to stop banks from offering these products.

It is easy to pile on the payday loan industry whether they originate from an affiliate website in conjunction with a lender or from a bank.  The realities are this.  There is a demand for payday loans because emergency expenses do occur.  People need emergency cash from time to time.  These loans also come with more inherent risk than traditional loans that require collateral.

Additionally, banks must make a profit.  Recent laws have restricted some former profit centers for banks (particularly overdraft fee restrictions) so they have to look for other areas in which to make money.  This is necessary in our system.  The key of course is to find balance.