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Banks might return to payday lending

By Marcie Geffner · Bankrate.com
Friday, January 24, 2014
Posted: 2 pm ET

Major U.S. banks are getting out of the business of making short-term, small-dollar deposit advance loans to their customers, but they might not be gone long.

So far, San Francisco-based Wells Fargo, Minneapolis-based U.S. Bank, Cincinnati-based Fifth Third Bank and Regions Bank, based in Birmingham, Ala., have said they intend to wind down, terminate or otherwise no longer offer these services, also known as payday loans.

Consumer advocates applauded the exit strategies.

The Center for Responsible Lending, a nonprofit research and public policy organization, called the bank announcements "good news."

"Banks have touted these loans as a quick fix to a financial shortfall, but data have consistently shown that, like other payday loans, the banks' products trap customers in extended cycles of high-cost debt," the organization said.

The NAACP, a civil rights organization in Washington, D.C., also commended the banks' actions.

In a statement, Dedrick Muhammad, senior director of the NAACP Financial Freedom Center, said short-term, small-dollar loans were counterproductive for banks.

"These banks have taken an important step towards responsibly serving the banking needs of their customers by helping them avoid unsustainable debt and the crippling effect of losing access to the banking system," Muhammad said.

But the banks themselves have hinted that they don't intend to abandon payday loans altogether.

Fifth Third Bank said it is working to develop and implement alternative short-term lending products by year's end or early 2015.

"The bank is committed to the thoughtful development of alternative solutions and offering services to customers that provide them choices, while ensuring consistency with regulatory viewpoints. 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," the bank said.

Regions Bank already has introduced a new personal installment loan with a minimum loan amount of just $250, secured by funds in a Regions Bank savings account. Regions also said it is developing other credit alternatives.

Do you think banks should be allowed to offer these payday loan alternatives?

Follow me on Twitter: @marciegeff.

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