Getting Behind the Veil on Bank Payday Loans
Borrowers Trapped in 365% Bank Payday Loans:
Getting Behind the Veil of This Hidden Problem
Several large banks are now making 365% payday loans. They call them:
- Direct Deposit Advance at Wells Fargo
- Checking Account Advance at US Bank
- Access Now at Fifth Third
- Regions Ready Advance at Regions
If you or someone you know is having trouble keeping their checking account in good order, you might ask these questions:
- Do they have a checking account with one of these four banks: Wells Fargo, US Bank, Fifth Third, Regions.
- Do they have direct deposit of either their paycheck or a benefits check.
- Are they on a fixed income- over 25% of bank payday borrowers are social security recipients.
- Do they mention high bank fees or overdraft fees.
Bank payday loans work differently than do fee-based overdrafts. Both are financially harmful.
Research has shown that storefront payday loans increase the borrower’s overdraft fees and bounced check fees, contributing to the unbanking of many cash-strapped people. People who have trouble with their checking accounts, and those who counsel them, may pinpoint overdraft as the problem, not recognizing the significance of the bank payday debt cycle.
Why is this a hidden problem?
- Banks push these loans, making them super easy to get on-line, over the phone or at a branch. Many borrowers might think they are getting a low-cost cash advance.
- Payday borrowers may think a 10% fee is cheaper than other credit, like their credit card at 18%. But $10/100 repaid in 10 days (typical bank payday loan term) is 365% APR.
- Since the bank takes its money first, repaying itself out of the next direct deposit, typically borrowers do not “fall behind” on this loan. The loan is repaid on time, but they are short on all their other bills.
- If there is no direct deposit within 35 days, the bank takes its money anyway, even if that puts the checking account in an overdraft situation. In this case, the borrower might see the problem as high overdraft fees, not linking the overdrafts to the advance.
- Since the bank is not actively “collecting,” the borrower might not see the “direct deposit advance” as the cause of their problems.