Regional banks U.S. Bancorp and Wells Fargo & Co. offer “checking account advance” loans that allow customers with direct-deposit accounts to access funds before they are credited to a customer’s account balance. The short-term loans carry annual interest rates of about 120%.
Doesn’t this sound familiar? Payday Lenders can also “advance” you money in your paycheck, but you have to go down and apply each time for a loan. Wells Fargo, in contrast, offers the “ease and convenience” of just getting one online, an ATM or the phone.
On the Wells Fargo website, to their credit (to their very little credit, in my opinion), they advise against using this service, remarking payday advances are “very expensive”. (OK, then why offer it?) From the Wells Fargo website, I did not see any restrictions on direct deposit advances per state. What this means is that even if you live in states which caps small loans to under triple-digit annual percentage rates (APR), you can still sign up for and receive direct deposit advance loans from Wells Fargo, effectively exempting them from payday loan legislation.
The states which have caps on small loan interest rates (targeted at payday loan lending):
| Arkansas Connecticut District of Columbia Georgia Maine |
Maryland Massachusetts New Jersey New York |
North Carolina Oregon Pennsylvania Vermont West Virginia |
Puerto Rico Virgin Islands |
On March 1, 2005, the FDIC announced revisions to its guidelines allowing its member banks to participate in payday lending. The guidelines seek to “ensure that this high-cost, short-term credit product is not provided repeatedly to customers with longer-term credit needs.” Thus, the FDIC has taken the important step of recognizing that payday lending can lead to a debt-trap. (But they still allow it, don’t they?)
Some of these revisions:
- Discourage long term debt cycles by transitioning to a longer term loan after six payday loan renewals. This means if you renew your bank-issued payday loan 6 times in a row, the bank automatically transforms the loans into a long term loan.
- The guidelines also call for banks to develop procedures to ensure that they do not make payday loans to customers who have had payday loans outstanding from any lender for a total of more than three months in the previous 12 months.
- Assuming a typical payday loan of two weeks, the FDIC guidelines would permit six transactions, but then would require the bank to offer to or refer the borrower to a longer-term credit product.
How come the banks can make payday loans while they are outlawed for other institutions? Because the banks are more trustworthy? Yeah right.
Has anyone here used direct deposit advance feature with either Wells Fargo or US Bank? Tell us about it by leaving a comment.
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i have used this service offered by wells fargo and have found it very useful and convinient….i understand the cost of the service but still can appreciate it….it costs less than a payday loan and is easier to obtain the money…they don’t let you take more than 12 advances in a row so there is a deterrent there to discourage you from getting yourself in a hole. however, i have had to declare bankruptcy within the last six months (which wells fargo was not involved in) and they have suspended my use of the service. i didn’t know this when i originally filed for bankruptcy protection. i am not sure when i will be able to use this service (if ever) even though my debt has been oficially discharged. i highly recommend bankruptcy protection to those who do not have any other options (as in my case) but this is one of the consequences i suppose.
I split my direct deposit 50/50 between Wells Fargo and US Bank. This way, I have more than the $500 DDA limit available – at any given time.
By using both banks, I have more than 1 full paycheck of NET PAY in DDA available at any given time.
The DDA is less expensive than a PAYDAY LOAN and most banks are willing to provide a repayment term of over 30 days. Most PAYDAY loan companies provide terms of 14-18 days.
Most banks will let their customers work with the collections department and create easy payment options in order to keep the account open and active.
***WARNING***CAUTION***
TAKE HEED AND LISTEN TO
THE TRUTH THAT LIES WITHIN!
***WARNING***CAUTION***
Before becoming eligible for a DDA,
US Bank forces all customers to wait 6 months after opening the checking account.
Wells Fargo is quite lenient in comparison; DDA is available 2 months after opening the account.
I must say, your post lives up to your myspace page.