1. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved1 Introduction Most people understand they need money to cover unexpected expenses, but many spend all they make on the basic necessities of life! Some have described them as merchants of misery or compare them to the loan sharks of the past. Others say they provide essential services to people who desperately need them. What do you do when you need money to pay an unexpected expense, but you don’t have any money? Many people get a small, short-term, high interest loan from one of the businesses that make up the Fringe Banking industry!

2. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved2 Objectives Explain what the term ‘fringe banking’ means You should be able to do the following after completing this lesson Summarize why the popularity of fringe banking is growing Identify the primary reasons to not to use fringe banking Discuss the major differences between fringe banking and traditional banking List the businesses that make up the fringe banking industry Explain how a pawn shop, title loan, check cashing outlet and payday lender works Review how a sub-prime lender works Define the important banking terms introduced in this lesson

3. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved3 6.5.1 – The Popularity of Fringe Banking What has aided the growth of fringe banking in recent years Why banks don’t typically make small, short-term loans Common reasons someone might not use a traditional bank In this section, you will learn: Who generally uses the services of fringe banking What is disappearing in many low-income areas

4. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved4 6.5.2 – The Problem with Fringe Banking What you need to be financially successful Why everyone needs access to financial services What the major difference between fringe banking and a traditional bank is How much greater the cost of the fringe banking services is Why some consider fringe banking to be predatory lending How fringe banking can become a trap for some people In this section, you will learn: Out-of-Control Interest Example You will run the following Interactive Example

5. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved5 6.5.3 – Fringe Banking vs. Traditional Banking How to calculate the nominal interest rate for a fringe banking transaction What the most regulated business in the US is Whether fringe banking is regulated by the federal and state governments What financial services are offered by fringe banking What the biggest difference between a traditional bank and the fringe banking industry is In this section, you will learn:

6. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved6 6.5.4 – The Fringe Banking Industry What the fringe banking industry consists of What the one service offered by the fringe banking industry is Which businesses are part of the fringe banking industry In this section, you will learn: Who the fringe banking industry caters to

7. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved7 6.5.5 – Pawnshops How much money a pawnshop will loan you What a pawnshop is In this section, you will learn: What the typical interest rate for a pawn shop loan is How a pawnshop works How long you have to repay a pawnshop loan What the collateral for a pawnshop loan is What happens if you are unable to repay a pawnshop loan

8. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved8 6.5.6 – Title Loans What a title loan business is How much money a title loan will loan you The typical interest rate charged for a title loan How long you have to repay a title loan In this section, you will learn: How a title loan business works What the collateral for a title loan is What happens if you are unable to repay a title loan

9. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved9 6.5.7 – Check Cashing What a check cashing business does How a check cashing business charges to cash a check What the typical range is when a flat fee is charged What the typical range is when a percentage is charged In this section, you will learn: What other service is provided by many check cashing businesses What the typical range is to cash a personal check

10. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved10 6.5.8 – Payday Loans What a payday loan business does How a payday loan works How much money is loaned each year by payday lenders How much money can be borrowed with a payday loan What the typical interest rate charged for a payday loan is What the max amount of time to repay a payday loan is Payday Loan Exercise In this section, you will learn: You will run the following Interactive Exercise What the collateral for a payday loan is

11. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved11 6.5.9 – Sub-prime Lenders What a sub-prime lender does How many mortgage loans are sub-prime loans How a sub-prime loan differs from a prime mortgage loan Sub-prime Mortgages Example In this section, you will learn: You will run the following Interactive Example: Who a sub-prime lender loans money to What a sub-prime loan is typically used for

12. Lesson 6.5 Fringe Banking February 28, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved12 Discussion Questions What is predatory lending and does it actually happen today? What are some of the recent trends in the fringe banking industry?