Archive for category Innovation

YadYap will harness the power of social interaction

A study published by the FDIC in November titled FDIC Study of Bank Overdraft Programs is very interesting as it applies to the use of payday loans. This study is a very in depth study of over 1,100 FDIC insured Banks that have Overdraft Programs. WSJ.com Chimed in on the issue with an article titled Consumers Vent on Overdraft Fees. This post simply focuses on 3 key issues/questions:

1. What was the FDIC summary of the Banks Overdraft Programs relating to fees charged?
2. How does this (should this) apply to payday loans?
3. In what way does YadYap digest this information?

Issue 1

The summary of fees quoted from the report is as follows:

For almost all study population banks operating an automated overdraft program, the main fee associated with the program was an NSF usage fee. Usage fees reported by these banks ranged from $10 to $38; the median fee was $27, charged on a per-transaction basis in almost all cases. In this context, a $27 fee charged for a single advance of $60 that was repaid in two weeks roughly translated into an APR of 1,173 percent. Many surveyed banks (24.6 percent) assessed additional fees on accounts that remained in negative balance status in the form of flat fees or interest charged on a percentage basis.

It is interesting here that there is no use of the term payday loan, in fact the term payday loan is not used within the 120 pages of the study. However they use the median fee charged of $27 on a $60 advance for two weeks and state the APR of 1173%. The payback in a two week period sounds alot like they are comparing it to a typical payday loan. The bottom line here is that the FDIC is telling us that overdraft fees are VERY expensive especially when looked at on an APR basis. It is also interesting to note that the WSJ.com article referenced above does state that many consumers use their banks overdraft programs as a payday loan.

Issue 2

There is an absolute need for short term financing in our country. That fact is evident by the billions in revenue generated by payday loan companies in the U.S. every year.

Without expressly stating it the FDIC is telling us that the overdraft program that many banks use is a terrible source of short term financing. More expressly many states as well as some politicians on the Federal level are telling us that Payday loans are not a good source of short term financing. The brass tacks of it all is that there has yet to be a better solution provided for the average American who needs a source for short term financing.

Issue 3

YadYap views the FDIC report as a positive in terms of talking apples to apples with opponents of traditional payday loans. If anyone is going to argue that payday loans are bad for those who use them, they need to provide evidence of a better source of short term financing. It is easy to find a problem (especially one with a 500% APR) but much more difficult to comprise a solution.

As we have said in the past, YadYap is working to provide the best possible solution to Americans who need short term financing. We are leveraging everything we know about the current payday loan model as well as looking outside that mold to offer peer-to peer short term loans. We plan to harness the power of social interaction and rating systems to incentivise borrowers to pay back their loans.

We hope to see many people on both sides of the isle support the YadYap model. We truly believe there is a better solution than both overdraft fees and current payday loans.