Big Banks Entering Payday Loan Fray

Las Vegas Review-Journal
September 11, 2011
Sieroty, Chris

More big banks, including Wells Fargo and U.S. Bank, are offering payday loans that consumer advocates say are similar to those offered by Advance America and other check cashing stores. There are concerns that payday loans create a cycle of debt as borrowers take out loan after loan and rack up fees to meet their obligations, but banks say these "direct deposit loans" are for emergencies only and prevent borrowers from falling deep into debt. Wells Fargo, for instance, says it provides such loans only to established checking customers with recurring direct deposit or a tax return and does not advertise the service. In Nevada, payday loans are restricted to 25 percent of expected gross monthly income and have a maximum term of 60 days, but state law does not impose limits on the finance rate. There are more than five payday lending outlets per 10,000 households in the state, according to the Center for Responsible Lending. Wells Fargo imposes a fee of $7.50 per $100 borrowed, translating into a 261 annual interest rate over a two-week pay cycle, but the bank says borrowers cannot borrow more than 50 percent of their direct deposit amount and no more than $500. Moreover, they must take a one-month break after obtaining advances over a period of six months. CRL recommends that borrowers avoid loans with annual interest rates above 36 percent -- a ceiling currently in place in 16 states and the District of Columbia.
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