Smart Borrower Blog

Banks Turn To Payday Loans as Regulation Tightens

Nov 14th, 2012 @ 10:13 PM by Amber Nelson

As the nation’s banks look for ways to recoup their losses from recent fee regulations, some are looking to the payday-style loan to bring in extra cash.

Wells Fargo and U.S. Bancorp are among the big banks who are advertising short-term loans that look an awful lot like the ill-reputed payday loans offered by strip-mall establishments. A traditional payday loan allows a borrower to get an advance on their next paycheck by agreeing to pay exorbitant fees and interest rates. For example, the Consumer Financial Protection Bureau has clocked these loans with annual percentage rates up to 521 percent. And payday loans can lead to a cycle of debt as borrowers make advance after advance on their paychecks and are never able to repay the loan and all the interest and fees.

Yet the banks are saying their personal loans have been terms and limits than traditional payday loans. Wells Fargo’s “Direct Deposit Advance” loans have a limit of $500, with a fee of $7.50 for every $100 borrowed and does not allow customers to keep borrowing who haven’t paid after six straight loans. U.S. Bank, part of U.S. Bancorp, calls their loans “Checking Account Advance” and offers a fee of $2 for every $20 borrower, again with a loan limit of $500.

Citigroup and JPMorgan Chase are reportedly not going to offer similar loan products.

At least one state attorney general is worried that banks are violating the law by making these payday-esque loans. Roy Cooper, the state attorney general of North Carolina says a product from Regions Financial, an Alabama-based bank could be illegal if it defies the state’s anti-payday-loan law.

“We want to come at this from all angles to prevent these kinds of loans in North Carolina,” said Cooper as quoted in a BusinessWeek article.

Regions’ excutive vice president Jeffrey Lee defended its “Ready Advance” loans in a letter, saying they

“create a credit record that will enable [borrowers] to graduate to more mainstream credit products, whether with us or with another reputable institution.”

Banks are getting creative with loan products after having been restricted on how much they can collect in overdraft fees and debit-card swipe fees, among others in recent rule changes.


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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