Banks Payday Loans – Around 250 advocacy groups have sent a petition to federal regulator’s requesting the Consumer Financial Protection Bureau look into banks offering advance deposit loans that they say are just as bad as payday loans.
The advocacy groups say that these advance loans banks offer to their customers keeps them in a cycle of debt that they cannot afford to pay back because of the cost and short pay back terms associated with them.
Four banks that are being scrutinized for the deposit or checking account advance loans are; Wells Fargo, US Bank, Regions Bank, and Fifth Third Bank. They offer short term advance loans with fees of around $10 per $100 borrowed that usually carry a term of 35 days to be paid back which is an APR of 120%. A typical payday loan from a paycheck advance business cost around $16 per $100.
“These products are designed to trap people,” says Kathleen Day, spokeswoman for the Center for Responsible Lending, the nonprofit group that spearheaded the petition.
Usually within such a short term the customer cannot afford to pay back the entire loan plus the fees the very next month, forcing them to take another advance loan keeping them in a cycle of debt. A person in a payday loan cycle is in debt on average 212 days a year compared to the bank advance loans that see a person in the debt cycle on average 175 days per year.
“Payday loans erode the assets of bank customers and, rather than promote savings, make checking accounts unsafe for many customers,” according to the advocacy groups, “They lead to uncollected debt, bank account closures, and greater numbers of unbanked Americans.”
“When you’re desperate, the terms of the loan seem to matter a lot less. You need the money. You need it now,” said Richard Cordray of the CFPB. “Rightly or wrongly, people faced with tough situations often think these payday loans are their only options.”
Corday went onto say looking into the practices of these types of loans are already a top priority.