U.S. Bank, Wells Fargo Criticized for High-APR Loans
St. Paul-based advocacy group Minnesotans For a Fair Economy has criticized four large banks, including U.S. Bank and Wells Fargo, for charging customers exorbitant rates-as high as 365 percent-on loans that resemble payday loans.
In a report released Monday, the group said that while regulators are constantly cracking down on smaller payday lenders for charging customers higher fees and interest rates than allowed by Minnesota law, four large banks charge even higher rates for their emergency loans. In addition to Minneapolis-based U.S. Bank and San Francisco-based Wells Fargo, which has a major Minnesota presence, the group also named Fifth Third Bank and Regions Bank in its report.
“The banks are getting away with something that had drawn legal action on the payday lenders you see on the street,” Kevin Whelan, spokesman for Minnesotans for a Fair Economy, told the Star Tribune. “We hope the leadership at each institution will reconsider these business practices.”
The group called out U.S. Bank's “checking account advance” service, which charges customers $2 for every $20 borrowed, and Wells Fargo's “direct deposit advance” that charges $1.50 for every $20 borrowed. Because the terms of these loans are so short-typically 10 days-they amount to extremely high annual percentage rates (APRs): 365 percent at U.S. Bank and 274 percent at Wells Fargo, according to the report.
However, U.S. Bank and Wells Fargo representatives told the Star Tribune that these advances are different from payday loans because they are only available to people who have checking accounts with the banks and make regular direct deposits into them-and because the advances are automatically repaid with the customer's next direct deposit. In addition, both banks claim that they don't actually calculate an APR on interest for the loans because they charge straightforward fees instead.
“It's not appropriate to calculate an APR on a flat fee that must be repaid with the next direct deposit,” U.S. Bank spokesman Tom Joyce told the Minneapolis newspaper.
U.S. Bank reportedly introduced its “checking account advance” service in 2006. A 2012 customer survey found that 96 percent of the customers using it were “satisfied” or “extremely satisfied” with it, Joyce said.
To learn more about the payday lending industry, click here to read the Star Tribune story.