By Arjan Schütte, Contributor

No one who reads my blog will be surprised to learn that 1 in 4 Americans are underbanked.  But I do see quite a few raised digital eyebrows when I point out that these 80 million consumers spend almost $80 billion on fees and interest for the most basic of financial services every year.  While most would assume that these enormous fees are generated primarily by check cashers and payday lenders, the actual amount is quite small at $1.7B and $4.8B, respectively. In fact, the lion’s share of these fees derive from subprime auto lending.

Emerging Middle Class Americans paid $27 billion in interest and finance charges for their cars in 2011.  $27 billion!  That’s over one-third of all financial services expenses incurred by those with imperfect credit or those that rely on alternative financial services. Back of the napkin math works out to just over $300 per person per year. As a point of reference, I pay only one-fifth of that amount.

Is this population, as a whole, really five times more risky than me? While some individuals may be, I would argue that most are not. And I believe this will have dire repercussions for many of today’s subprime auto lenders.

Over the course of this week, I’m going to write a three-part series on this hidden but giant industry within consumer finance. This first post makes the obvious point that it’s large and growing. In the next, I’ll argue that subprime auto lending is the new payday lending – in a good way.  And finally, I will make some predictions about how the industry will change in the next five years.

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