More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect January 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank.
Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.
Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.
Research by the Center for Responsible Lending (CRL) has found that the typical bank payday borrower:
• Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent;
• Has a one in four chance of also being a Social Security recipient;
• Is twice more likely to incur overdraft fees than bank customers as a whole and
• Often remains in debt for six months of a year.
Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years.