Wells Fargo & Co. and U.S. Bank said Friday that they will stop offering “deposit advances,” a kind of payday loan that had come under fire by federal regulators last year.
With about $1.5 trillion in assets, Wells Fargo was the largest bank offering the costly, low-dollar loans. Regions Bank announced an end to deposit advances earlier this week.
In deposit advances, customers borrow small amounts of money between paychecks and then pay it back, plus a fee, when their next scheduled direct deposit comes through.
Regulators placed strict limits on these loans in November, saying they often trapped consumers in a cycle of debt. The Consumer Financial Protection Bureau said the fee for a typical deposit advance lasting 12 days yields an annual interest rate of more than 300 percent.
As we’ve reported, banks regulated by the Federal Deposit Insurance Corporation and the Comptroller of the Currency were barred from offering the loans in consecutive months, and were required to assess their customers’ ability to pay them back.
Wells Fargo said customers who open checking accounts beginning Feb. 1 will not have access to the service, called Direct Deposit Advance. Existing users of the loans will be able to get them until midyear.
U.S. Bank said it won’t offer its service, Checking Account Advance, to new customers starting Jan. 31, and will discontinue it for current customers on May 30.
Other banks still offering deposit advances are Fifth Third Bank, Guaranty Bank and Bank of Oklahoma. Fifth Third is not subject to the loan rules issued last fall because it, like Regions Bank, answers to the Federal Reserve.