Woodstock Institute believes that when financial products are responsible, they provide a valuable service and build a long-term relationship between financial institutions and consumers.  When they are transparent, customers are free to choose the best option for their financial situation.  But too, often financial products are neither responsible nor transparent. 

For example, the unregulated consumer installment loan industry, in an effort to evade short-term loan consumer protections, has developed the payday installment loan.  These are extremely high-cost, long-term loan products with rates as high as 1,100 percent—not for a short-term loan, but for loans as loan as six months.  With outrageous interest rates, even by payday loan standards, along with insurmountable balloon payments, these products are hazardous to consumers’ financial health.

Even when interest rates are clear, add-on costs for junk insurance and unrelated membership fees can push an otherwise affordable loan into the triple digits.  In Illinois, 46 percent of consumer loan companies offer these types of add-on insurance products, with little oversight.

The Financial Products Safety Commission would review these types of products and ensure that any financial product, from credit cards to payday loans, meets a minimum safety standard.

Comments (2)