Banks' payday loans are more pervasive
There was a day when bankers wouldn't be caught dead in the company of payday lenders, those strip-mall hustlers who make a killing by advancing a little rent money at outrageous terms and interest, ensnaring lower-income Americans in a cycle of debt.
But now it seems bankers are joining them.
With mainstream banking's customer approval rating at an all-time low, apparently payday loans are no longer off the table as a potential new revenue stream to offset the outlandish fees they lost to financial reform.
Some of these products have been around a while, but they're only now being pushed into prime time as banks need the cash.
And they all deserve serious scrutiny.
According to the Associated Press, banks don't call their version a payday loan. I mean, who needs that baggage, right?
Instead, they've rebranded this predatory product with a bland, generic-sounding moniker: direct deposit loan.
To further remove themselves from the reality of what they've stooped to, banks stress that their direct deposit loans are intended for emergency use only and come with safeguards to keep customers from relying too heavily upon them.
For instance, Wells Fargo's Direct Deposit Advance only allows you to borrow up to half of your direct deposit paycheck or $500, whichever is less.
And for this convenience, they charge $7.50 for every $100 borrowed. That's pretty steep, but still less than half of the average payday lender's cut of $16.
U.S. Bank calls its version Checking Account Advance. Fifth Third Bank calls its Early Access. Regions calls its Ready Advance.
They all charge 10 cents on the dollar, which they claim translates into 120% APR, still well below Benny on the corner. But it seems to me that, since you have to pay these back within 35 days, the vig is more like a monthly percentage rate of 1,440%.
Other problems I have with these products (besides the obvious): Some have hidden fees, the repayment mechanism is invasive (basically, they take theirs from your first incoming direct deposit) and they ding you with the fee every time you take a $10 or $20 advance.
If this sounds familiar, it should.
This banking "convenience" has all the earmarks of the late, lucrative overdraft fee scam written all over it.
After all, what's better than dinging you after the $5 overdraft? Dinging you before the $5 overdraft!
My question to these banks is simple: If I'm a respected customer whose credit has made me worthy of an account at your bank, why are you treating me like pond scum?
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