Why These Are Under Fire Now
In most instances, the loans are not new. Wells Fargo has actually offered Direct Deposit Advance since 1994, while US Bank and Fifth Third introduced their products in 2006 and 2008, respectively.
Regions introduced Ready Advance in May 2011. A month later, the Office of the Comptroller of Currency proposed guidelines addressing bank deposit advance loans, a move the CRL says inadvertently legitimizes what it believes is a predatory product.
“A year ago the industry didn’t have the green-light to pursue this,” Day says. She adds that Fiserv Inc., a provider of software systems to the financial industry, recently launched a product called Relationship Advance, which allows banks to provide credit to help bridge short-term deficits. “We’re trying to stamp out [the service] before it comes widespread,” she says.
What the Banks Are Saying
Banks that currently offer deposit advance loans say there are several distinctions that make the product different from a loan you could get from a payday lender.
“We put in place strict limits and protections to help customers avoid becoming overextended,” says Teri Charest, a spokeswoman for US Bank. This includes limiting how long a customer can use the option, enforcing a mandatory cooling off period (meaning they must go a certain time without using the loan) and providing information about alternative, low-cost credit options that may be available.
Similar restrictions are in place at the other financial institutions offering the service. For instance, Regions reports the repayment history to the credit bureaus, which helps customers establish or build their credit. Wells Fargo does not report its data to credit bureaus, while US Bank and Fifth Third did not respond for comment on this practice.
All four banks also point out that the product is not meant – or marketed – for mass consumption.
“You’re never going to walk into a store and see a poster about this product,” says Richelle Mesnick, a spokeswoman from Wells Fargo. “It is designed to get a customer through an emergency situation.”
What Happens Next
Banks currently offering deposit advance loans don’t have immediate plans to amend them as they say it serves a need amongst their customers.
“There is a need for short-term credit quickly,” Mesnick says.
The CFPB has not responded directly to the consumer watchdog petition, but has said it that will include these products in its inquiry into payday lending that is currently under way. Deposit advance loans are actually named specifically in the CFPB’s examination document that outlines what products and services the agency will regulate.
Banks reiterate that the product should only be used in emergency situations, while consumer advocates advise people to avoid the product entirely.
“It’s not something that really helps,” Day says. “People should stay away from them.”