Consumer watchdogs are calling on regulators to stop mainstream banks like Wells Fargo from offering customers payday-style loans that they say trap borrowers in long-term debt.
Once confined to the shady storefronts of payday loan shops, advertisements for short-term loans with triple-digit interest rates have made their way onto the websites of banks like Wells Fargo and U.S. Bank.
Wells Fargo's Direct Deposit Advance Service gives customers advances on their paychecks, typically for a fee of $10 per $100 borrowed or an annual percentage rate of 120 percent or higher.
"Because the entire loan must be repaid in short order, borrowers are likely to have difficulty both retiring the loan and meeting their other obligations. As a result, these borrowers--like the typical customer of payday loan stores--will likely take out a series of back-to-back loans, staying indebted for a significant portion of the year."
The Center's report concludes: "Unless the Office of the Comptroller of the Currency and other bank regulators take action with regard to bank payday loans, these products will likely proliferate throughout the banking industry as financial institutions look for new sources of fee income."
The Huffington Post Investigative Fund is also covering the new trend.
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