NEW YORK – Payday loans may be coming to a bank near you.
They’re marketed under a different name, but a handful of major banks already let customers borrow against their paychecks for a fee.
Banks say their loans are intended for emergencies, and they are quick to distance themselves from the payday lending industry. But consumer advocates say these direct deposit loans – as banks prefer to call them – bear the same predatory trademarks as the payday loans commonly found in low-income neighborhoods.
Specifically: Fees that amount to triple-digit interest rates and short repayment periods. With a traditional payday loan, for example, a customer might pay $16 to borrow $100. If the loan is due in two weeks, that translates into an annual interest rate of 417 percent.
Banks say their direct deposit loans are different because they come with safeguards to prevent such overreliance. Wells Fargo, for example, notes customers can only borrow up to half their direct deposit amount or $500, whichever is less. Wells Fargo customers can max out their loans continually for up to six months before they’re cut off. Then after a one-month “cooling off” period, they can resume taking advances.
U.S. Bank, which has more than 3,000 branches mostly in the Midwest and West, and Fifth Third Bank, which operates 1,300 branches in the Midwest and South, offer loans with similar terms and restrictions.
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