Banks Getting Into Payday Loan Racket

Posted in Debt by Jen Stryker
June 29, 2010 11:01 AM - 1 Comments

It seems you don’t have to be a sleazy payday loan store to offer payday loans these days.

They are being marketed as acount advances and peddled to customers whose paychecks are directly deposited into their checking accounts. According to a new report from the National Consumer Law Center supposedly respectable banks are getting in on the action, too.

Of course they don’t call them payday loans, because of the horrible connotation that carries.

Instead they’re called account advances and peddled to customers whose paychecks are directly deposited into their checking accounts.

A little short on cash before your next check is due?

The bank will advance whatever you need, right into your account, and then repay itself when the next deposit of $100 or more is received.

The law center says banks pushing this service, including U.S. Bank, Wells Fargo and Fifth Third, are charging $2 for every $20 borrowed.

That works out to an annualized percentage rate of 240% for customers who are paid semi-monthly and take the advance a full 15 days before pay day.

The cost jumps to 521% APR for customers who get the money just seven days before they’re paid.

Whatever the bank may call them, the law center says: “These advances are payday loans, plain and simple — triple digit loans repaid on the next payday.”

I guess we shouldn’t be surprised to see this.

Why should we expect banks to pass on the chance to charge their customers 521% interest just because it’s…it’s…what the word I’m looking for? Oh yeah, wrong.

And how did the banks even get the idea to get into the payday loan business?

The law center found that industry consultants are suggesting it’s a great way to replace the income banks once got from overdraft fees.

(The Federal Reserve is forcing banks to get permission before enrolling customers in overdraft protection programs before charging those fees. Some banks are pressuring customers to “opt-in.” Others aren’t. Here’s a look at how many of the larger banks are responding to the new rules.)

So if a salesperson calls to pitch you one of these loans under the guise of a clever name such as “Early Access” or “iAdvance,” politely decline.

Then drop by your local branch and tell the manager how disappointing it is to see the bank stoop to this and suggest they paint the building a bright yellow.