Banks Dip Into Payday Loan Revenue


POSTED: Tuesday, May 8, 2012 - 10:38pm

UPDATED: Thursday, May 10, 2012 - 7:24pm

Many Now Offer Cash Advance Services

Payday loans, for years a fixture in working class neighborhoods, are now a service offered by some banks and credit unions.
Bianca Rodriguez, a working mother of six found herself in need a few years back.

"I got into horrible debt with those because I was taking out another advance to pay the other advance to pay the other advance. I got up to about two thousand at one point," said Rodriguez.

Typically, payday loans have to be paid back in two weeks with interest rates that can be as high as 500%.

"They know that you're desperate for money. Your credit's not great so this is basically the only option you have," said Rodriguez.

But now banks and credit unions offer these emergency payday loans, or as they call them,direct deposit advances.Wells Fargo has offered them for years and Bianca Rodriguez says the service is a life saver. They come with a much lower interest rate, although still expensive. Rates can be as high as 28%. Wells Fargo charges $1.50 for every $20 advanced.

"You have a bill that comes in that's unexpected or you know your child gets sick so you just advance the money and you know you're paying it right back,” said Rodriguez.

Rodriguez says it's easy and convenient because Wells Fargo automatically deducts it from your checking account.

But now this easy access to cash advances worries some consumer groups. The National Consumer Law Center says there are people who wouldn't walk into a payday loan store but think if a bank is doing it, it must be safe.

The Consumer Financial Protection Bureau cracked down and held a public hearing this past January to gather information on the payday lending market and then sent a guide to make sure banks were following the laws.Consumer groups are still upset with banks offering cash advance services..

We asked Wells Fargo if they had to change any of their procedures in response to the CFPB's newer regulations. Wells Fargo declined an in person interview but did send us responses to our questions in an email.

"We regularly review all of our products and services and take into account industry trends, the impacts of the changing economic and regulatory environment, and make changes as necessary," said Joe Stroop, Communications Specialist for Wells Fargo Banks.

Wells Fargo offers a service that not many other banks do.

"I hold on to Wells Fargo because of the direct deposit advance just in case I ever need it, I know it's there," said Rodriguez.

Wells Fargo says it advises its customers this option is an expensive form of credit.

"Before taking each advance, the customer is reminded of the fee that is assessed and how it will be repaid. Focus groups have demonstrated that customers understand how the service works, including costs and repayment terms, and value the simplicity of the service," said Joe Stroop.

Henry Gallardo, Director of Investment Management at Strategic Wealth Advisors,says banks recognize there is money to be made in this market.

"The banks understand that if they don't provide the service, somebody else will,whether it's a competitor or through the non-traditional payday loan centers for them. It's just a profit center like anything else," said Gallardo.

Gallardo advises there are other alternatives to making sure you have the money you need, but that takes planning and is not always an option. He says people need to weigh their alternatives.

"It's not a good habit to have because again at the end of the day it does cost money and the easier something becomes, the more likely you are to turn to it over and over and over again. As a consumer we want to be very careful about blurring the lines between needs and wants," said Gallardo.

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