You have reached your limit of free articles this month.

Enjoy unlimited access to SpringfieldNewsSun.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and interactive features. Starting at just 99c for 8 weeks.

X

Welcome to SpringfieldNewsSun.com

Your source for Clark and Champaign counties’ hometown news. All readers have free access to a limited number of stories every month.

If you are a News-Sun subscriber, please take a moment to login for unlimited access.

Banks to stop paycheck advance services


Customers of Fifth Third Bancorp, U.S. Bancorp and Wells Fargo & Co. won’t be able to borrow cash advances against their paychecks after 2014.

Those companies were the largest banks in the U.S. offering deposit advance programs. They are now winding down payday lending programs to customers that have funds direct deposited to their accounts.

Bank customers pay a set fee, typically based on the amount requested. For example, charges could be $2 in fees for every $20 borrowed, according to the Consumer Financial Protection Bureau, the federal agency created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The agency has authority to monitor and enforce consumer financial laws.

Advances are repaid automatically when the next qualifying electronic deposit is made. However, these small dollar, short-term loans usually don’t consider the consumer’s overall outstanding debt and other bills, according to the CFPB.

“We found that the median borrower took 14 of these loans in a year, which means every bank cycle they got, they were in debt to the bank,” said Uriah King, vice president of state policy at the Center for Responsible Lending. The center is based in Durham, N.C., and describes itself as a non-political, nonprofit focused on research of financial issues.

Payday loans are debt traps with annual percentage rates up to 300 percent, King said.

“If you don’t have enough money to pay for a financial emergency, plus all your other bills, and you have minimal savings, there’s no way you can pay off a 300 percent loan all in one lump sum,” King said. “Guess what happens? People re-borrow.”

Federal government regulators issued repeated warnings in 2013 about the risks of making small dollar, high interest loans to customers without evaluating their ability to repay.

The CFPB in April 2013 released findings that raised “substantial consumer protection concerns” about payday and deposit advance products.

Consumers told the federal agency they liked the speed at which these short-term loans are given, the availability of credit for some people who might not qualify for other credit products, and consumers’ ability to use these loans to avoid overdrawing an account or paying a bill late. The concerns surround the risk of not being able to repay the loan while still having enough money left over for other expenses, the high cost of the loan rate, and “aggressive” debt collection practices in the case of delinquency or default, according to the bureau’s report.

“What appears clear… is that many consumers are unable to repay their loan in full and still meet their other expenses,” read the CFPB’s conclusions.

“The high cost of the (payday) loan or advance may itself contribute to the chronic difficulty such consumers face in retiring the debt.”

Bank regulators the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued guidance in November 2013 warning banks under their supervision about the potentially risky practices. The FDIC said it will examine credit quality practices and compliance with consumer laws.

“The FDIC continues to encourage banks to respond to customers’ small-dollar credit needs; however, banks should be aware that deposit advance products can pose a variety of credit, reputation, operational, compliance, and other risks,” the FDIC said.

The guidance “aims to alert financial institutions to the risks posed by certain deposit advance products and to encourage institutions to meet the demand for small-dollar loans through affordable products that are prudently underwritten and designed,” FDIC Chairman Martin Gruenberg said in a statement.

In response, Cincinnati-based Fifth Third on Jan. 17 announced plans to stop enrolling customers in its Early Access deposit advance service after January 31. Fifth Third will phase out the service to existing customers by year end.

There is a “clear and continued need for small dollar, short-term credit solutions,” Fifth Third said in a release, noting it’s committed to offering alternative services consistent with regulatory views.

“A primary objective is to serve customers within the traditional banking system, rather than pushing them into less-regulated providers outside the banking system, where services are more costly,” Fifth Third said in the release. The bank declined comment beyond what was said in the announcement.

U.S. Bank followed suit and said on Jan. 22 it will begin winding down its Checking Account Advance product to “align with final regulatory guidance.”

“We recognize our customers’ need for short-term, small dollar credit,” said Kent Stone, vice chairman of consumer banking sales and support at U.S. Bank, in a statement. “We are committed to finding new solutions that meet the needs of all of our customers and fit within the current regulatory expectations.”

U.S. Bank also declined further comment.

Effective Friday, Jan. 31, U.S. Bank will no longer offer Checking Account Advance to new checking account customers. It will be discontinued for current customers on May 30, 2014.

“I think we’re optimistic they will create a better product, one that’s reasonable termed, fairly priced, and most importantly, the borrowers have the ability to pay the loan back,” said King of the Center for Responsible Lending. “Regulators have made clear that’s their line in the sand for this.”

Fifth Third is the largest bank by deposits in Ohio, and U.S. Bank is third largest, according to the FDIC.


Reader Comments ...


Next Up in News

Missing woman found in well hole in neighbor’s shed; man charged with kidnapping
Missing woman found in well hole in neighbor’s shed; man charged with kidnapping

Police arrested a man Wednesday morning after authorities found a missing woman trapped inside his shed. Jennifer Elliot was reported missing just after midnight Wednesday and was found around 4 a.m. after residents heard her cries coming from a shed on Central Avenue in Blanchester.  Police went to the 100 block of Central Avenue after a neighbor...
Freedom Caucus says it now backs GOP health care plan
Freedom Caucus says it now backs GOP health care plan

Members of the House Freedom Caucus announced Wednesday that It will now back a Republican health care plan since an amendment that allows states to opt out of some Affordable Care Act rules has been included. "While the revised version still does not fully repeal Obamacare, we are prepared to support it to keep our promise to the American people...
Columbus Zoo mourns loss of Nanuq, his polar bear cubs still need names
Columbus Zoo mourns loss of Nanuq, his polar bear cubs still need names

The Columbus Zoo and Aquarium announced today the death of Nanuq, a 29-year-old male polar bear who sired four litters at the zoo. Nanuq, who surpassed a typical zoo-kept polar bear’s lifespan by more than eight years, suffered from liver cancer and was euthanized this morning, according to the zoo’s release. Columbus Zoo and Aquarium President...
Madonna unhappy with biopic in works on life of Material Girl before fame
Madonna unhappy with biopic in works on life of Material Girl before fame

  Madonna has some strong words for the producers of a planned biopic on her younger years, before she hit the big time. “Nobody knows what I know and what I have seen,” she said in an Instagram post.  “Only I can tell my story.” Universal acquired the rights to a script, called “Blond Ambition,” about...
2-year-old bound with tape at Charlotte day care, police report says
2-year-old bound with tape at Charlotte day care, police report says

A 2-year-old’s arms and mouth were bound with packaging tape by her day care teacher, according to a police report that WSOC obtained. WSOC reporter Ken Lemon spoke to the child’s mother who filed a police report on the incident at The Children of America Education and Childcare Centers in the University area. The 2-year-old’s mother...
More Stories