bank rates

Wells Fargo Loan Mimics Payday Scheme

Last year, I wrote a post about how some supposedly reputable banks have begun offering their checking account customers payday loans.

Bank is pushing 'Direct Deposit Advance' loans with annualized APR of 240%Of course, the banks aren’t calling them payday loans. That would be too tawdry.

But my bank is now pushing one of these loans on me, and it’s made my blood boil.

I have my checking account with Wachovia, which was bought by Wells Fargo in October 2008.

After my Wachovia account was finally switched over to Wells Fargo earlier this month, I logged on to the website to see how much money I had in the account.

I couldn’t help but notice a new link that said “Direct Deposit Advance,” right next to my balance.

With just a few clicks of the mouse, I could instantly have more money in my account — up to $500.

Wells Fargo’s marketing makes it sound like a nifty convenience for customers who want to take advantage of that big sale on HDTVs but don’t have quite enough cash to cover the price.

Why wait until you get paid again when your friend the bank will step up with a few hundred bucks to cover the difference?

This is a very pricey way to borrow money.

The bank will repay itself as soon as there’s enough money to cover the loan deposited into your account — probably your next paycheck — and charge $2 for every $20 you borrowed.

So put $500 in your account, and Wells Fargo will take out $550 the first chance it gets.

It works out to an annualized percentage rate of 240% for customers who are paid semimonthly and take the advance a full 15 days before payday.

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

These kinds of terms and triple-digit interest rates are exactly what you can expect to find at a payday loan store.

On its website, Wells Fargo even has a disclaimer that acknowledges this “is an expensive form of credit intended to assist with short term and emergency borrowing needs.”

So don’t let the sales pitches from Wells or any of the other banks offering these kinds of loans fool you.

Don't miss out on the next bank deal. Get the newest deals delivered straight to your inbox!

Comments (7)
1 Star2 Stars3 Stars4 Stars5 Stars (6 votes, average: 4.67 out of 5)
Loading...
7 Existing Comments
  1. Jayden55 said:
    on February 16th at 12:19 pm

    Seeing as it says that it’s a service, I would advise not using it. But sometimes things come up, and it’s nice to have that payday advance available to get out of a tight situation, particularly for people who do not have the credit stands to take a loan…just saying

  2. Edwin said:
    on February 16th at 12:25 pm

    Instead of taking out the loan why don’t you bounce a couple of $250.00 checks? Guess what your fees are then? $35.00 x 2 to Wells Fargo, plus $25.00 x 2 to the merchants you bounced them to. So you’re paying $120.00 on the same $500.00 and you have bounced checks show up on your TeleTrack. Pick your poison…is there a gun on Wells Fargo site forcing you to take out the direct deposit advance? Jen, I am sure you are pro-choice when it comes to abortion, how about being pro-choice when it comes to consumer lending?

  3. SARA said:
    on February 16th at 01:14 pm

    WELLS FARGO HAS BEEN DOING DIRECT DEPOSIT ADVANCES FOR YEARS. THIS IS NOT SOMETHING NEW. I FEEL IT IS UNFAIR BECAUSE THEY HAVE THEIR HAD IN THE FEDERAL RESERVE TILL. I AM A PAYDAY LENDER. I SUFFER THE RISKS OF A GREAT DEAL OF NON RELPAYMENT. I PUT MY CUSTOMERS INTO “PAYDOWN” IF THEY FIND THEMSELVES IN A BIND. THEY MAKE PAYMENTS UNTIL THEIR ACCOUNT IS PAID OFF WITHOUT ACCRUING ANY MORE INTEREST. I DON’T ASK THEM TO COME IN. I DON’T HOLD A GUN TO THEIR HEADS.

  4. Hanrod said:
    on February 16th at 04:33 pm

    For Edwin, and others of that ilk, or who may simply be too young to remember, or are consummate “libertarians”. We once had USURY laws to protect against such exploitation and, hopefully, will one day get back to them, along with other consumer protections from this kind of corporate deception and FRAUD. “Let the buyer beware” is not a law, it is a LICENSE to defraud. I have a comfortable financial situation, considerable savings, and know much more about legal land financial matters then most; BUT how about those who are NOT so fortunate — Yes, WE ARE OUR BROTHER’S KEEPER!

  5. Ian said:
    on February 20th at 12:51 pm

    This is appalling. Sounds like they don’t value the trust of their customers. Between this and discontinuing their free checking, I’m definitely steering my girlfriend away from keeping her account with them.

  6. Wells Fargo Employee said:
    on July 6th at 11:38 pm

    You shouldn’t be taking out $500 anyway. I know the advantages and disadvantages to this direct deposit advance. It can get you into hot water when it comes to taking out a substantial loan (such as the wells fargo minimum $3,000), but it is also very helpful when you’re out of money, and out of gas, but need two more days of commuting to and from work/home/school etc. and need $20 to cover the gas. If you abuse it, it will hurt you, if you use it in moderation and only for the emergencies it mentions, you will be fine. Do not be so cynical about it until you examine it in full. Like Edwin said before me, there is no gun on the website pointed at the customers’ heads, it’s a choice; and you aren’t even able to utilize the option until one or two pay periods proving that direct deposit is established, and that the income is sufficient to pay back the balance consistently.

  7. Wells Fargo Employee said:
    on July 6th at 11:44 pm

    Also, if people are so upset about free checking being discontinued, they should look further into it. The discontinuation of free checking was actually to encourage customers to save money. Both savings and checking are free if you set it up to where one dollar is transferred to your savings with each use of the debit card, or $25/month from checking to savings. This money can also be transferred back into checking if need be, as far as I’ve read up on it.