Big Banks – Payday Loans

Bloomberg Business Week recently just released an article discussing big banks involvement in Payday type loans, in their attempt to try and replace $15 billion in lost revenue due to new regulations regarding overdraft fees.

Typically, a Payday type loan allows a customer to borrow against his future paycheck.  Various banks have different programs, but they range from allowing their customers to borrow from $20 up to a $500 or a preset limit.  The banks aren’t calling it a Payday loan because of the “tarnished and negative” connotation that the high interest loans imply.  Some banks, like U.S. Bancorp are referring to it as a “Checking Account Advance,” or Wells Fargo’s “Direct Deposit Advance Service.”  Consumers can expect to pay 120% on their money if paid within 30 days of the advance.

Banks claim that this program is less expensive than a Payday loan, and critics hold that banks have an unfair advantage as they are not limited by state law interest rates.  Congress is investigating legislation that would limit the Banks to one overdraft fee a month, or six a year.

No matter what the banks call it – they are looking to replace the loss of a large amount of revenue which is estimated at $10-$15 billion annually.