The “secret payday loan”
January 14, 2009 | alternatives, industry | Comments (2)The Consumerist blog got a US Bank insider to reveal the dirty secrets of how they milk customers. One is called “the secret payday loan” otherwise known as the Checking Account Advance. Here’s what they’re most proud of:
The best part? Its not regulated in any state (including Ohio) because “its not a payday loan” its a “feature of the checking account”, meaning that U.S. Bank has found an unregulated cash cow.
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Wells Fargo offers those too. They are unregulated payday loans and the best part is that they charge the same rate as payday lenders, even though they have a MUCH lower default rate because they give these loans to their own customers. I believe the customer has to have direct deposit and a minimum account history requirement, so these loans are not to “people off the street.” Since this is the case, you’d think that they would be able to charge a lower rate of interest, but they don’t. Payday lenders have a bad reputation, but no one seems to care that the banks have adapted a substantially similar business model with less justification (banks, due to diversification of services, would have less cost per loan as well as a lower default rate). The legislatures and regulators are looking at the payday loan industry through a magifying glass, but they completely ignore the same exact product at a bank. I don’t see how anyone can say that is not unfair or biased.
Actually, what I have seen for US Bank and Wells Fargo is a slightly lower rate. Ironically, they also do not follow the same regs as licensed PDL’s. There are two reasons that the states do not do anything to them:
1. They are federally chartered and therefore not regulated by the state.
2. They do an advance for a fee and therefore do not have to list the APR, not a payday loan.
They offer the same product with a different name and a different set of “rules”. Kind of ironic that banks are loved by state officials and PDL’s are loathed by the same folks for the same products!