Page 2 of 2 Previous
On Wednesday, the bureau issued a report on payday loans and the deposit advances banks offer, noting several problems with the products. Among these was the lack of basic underwriting to determine whether borrowers can actually repay the money.
The median size of individual deposit advances at banks is $180, the agency said in its report, and banks typically charge about $10 per $100 borrowed, which translates into an APR of 304 percent for a 12-day advance. There’s a lot of repeat borrowing.
The Federal Reserve, which didn’t join the guidance, sent a letter and statement via e-mail Thursday to all the banks it supervises, saying the products pose “significant consumer risks.” It encouraged state member banks to find responsible products to meet small-dollar credit needs.
“Our Checking Account Advance gives customers access to funds for use in case of an emergency, with transparent pricing, as well as limits, safeguards and cooling-off periods built in to help customers avoid becoming overextended,” U.S. Bank spokesman Tom Joyce said in an e-mail.
He said 96 percent of customers who used the service were satisfied.
Making ends meet
David Wagner doesn’t like the loans, but he sees the advances as a last-resort way for him to make ends meet. Potential new restrictions frighten him.
Wagner, 36, who works as a personal care assistant, lives in northeast Minneapolis and said he suffers from cystic fibrosis and other medical issues. He said that he has used the deposit advance loans at U.S. Bank heavily for years and that they are critical to helping him make his government checks cover the necessities.
On Tuesday, he said, the bank cut him off, informing him he couldn’t get more than nine deposit advances in a row.
“I know I’ve gone over nine before and I haven’t had a problem,” he said. “I just don’t know what my family is going to do. We got one bag of food yesterday at the food shelf.”
Nessa Feddis, senior vice president and deputy counsel at the American Bankers Association, said it’s too early to say how the industry will respond. The requirement to state an APR “is not useful to consumers,” she said.
The guidance likely will stamp out any interest banks might have in starting up such products, she said. “It is a real challenge balancing the need for small affordable loans in a convenient manner, and creating a sustainable product.”
Jennifer Bjorhus • 612-673-4683