Federal regulators are launching an investigation into a shadowy practice that banks don't like to advertise: inhouse payday loans. These high-interest short-term loans -- once only offered at storefront corner shops and check cashiers -- are now finding a home alongside an increasing number of checking accounts.

"The FDIC is deeply concerned about these continued reports of banks engaging in payday lending and the expansion of payday lending activities under third-party arrangements," Martin Gruenberg, acting chairman of the FDIC, told Americans for Financial Reform, a consumer lobby group earlier this week.

Big banks are increasingly offering the types of services that typically have been available through storefront lenders or check cashiers. Bank-issued payday loans are rarely advertised, however, according to banking industry sources.

“You’re never going to walk into a store and see a poster about this product,” Richelle Mesnick, a spokeswoman from Wells Fargo told Main Street, a personal finance publication, earlier this year. “It is designed to get a customer through an emergency situation.”

Gruenberg said the FDIC would investigate banks that make payday loans and expressed concern over the use of outside software used to administer them in a May 29 letter to the consumer group.

The letter was a response to a February petition from Americans for Financial Reform, signed by more than 200 organizations and individuals, asking the federal regulator to stop banks from offering these services.

The petition charged that advance loans by banks, including Wells Fargo, Fifth Third, Regions and US Bank, are structured like payday loans with high interest rates and balloon payments, and undermine the law in areas where payday lending has been restricted or prohibited.

Advance deposit loans at banks allow account holders to receive a early loan on a direct deposit or paycheck. Last year Regions Bank started offering its Ready Advance product, instant loans of $50 to $500; it charges $1 for every $10 borrowed. Repayment is deducted automatically from the next occurring direct deposit. Wells Fargo offers Deposit Advance loans, charging $7.50 for every $100 borrowed, but only in select states.

For some consumers, these products might be more affordable than an bank overdraft, a service that can provide a very short float at a cost of $35 per item. Consumer advocates have also been critical of overdraft fees, which the Consumer Financial Protection Bureau is investigating.

Over the last few years banks have lost a major source of revenue in overdraft fees since customers now have to opt into overdraft protection. Banks are seeking ways to bring in revenue; they haveraised prices on checking accounts and overdraft fees and added more fee-based services aimed at low-income customers.

Storefront payday lending has become an increasingly political issue for cities and states. Last month, San Jose, Calif., became the largest city in America to limit storefront payday lenders -- joining the ranks of dozens of other cities and states that have taken steps to restrict the practice.

Kathleen Day, a spokeswoman for the Center for Responsible Lending, said the FDIC's investigation is significant in the push for stronger consumer protections for the controversial lending practice.