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More banks discontinue deposit advances

By Allison Ross ·
Friday, January 17, 2014
Posted: 4 pm ET

Wells Fargo and U.S. Bank announced Friday their intentions to get rid of their deposit advance offerings to comply with guidance from regulators about the controversial short-term loan offerings.

The news comes on the heels of Regions Bank's announcement earlier this week that it, too, is winding down its deposit advance program, called Ready Advance.

Wells Fargo and U.S. Bank had previously said they were reviewing guidance released in late November from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. that outlined standards that banks should meet if they choose to offer deposit advances to consumers.

Some had complained that the guidelines would basically force banks to abandon deposit advance products. The guidelines include such things as having banks assess a consumer's ability to repay the loans before authorizing approval, or having banks institute a cooling-off period, during which a bank should wait one payment cycle -- usually a month -- after one deposit advance is repaid before another advance is offered.

U.S. Bank said it will quit offering its Checking Account Advance product to new customers at the end of this month. The product will be completely discontinued by May 30. "Customers who have an outstanding balance at that time will be offered extended repayment terms," it said in a press release.

Wells Fargo will stop offering its deposit advance program to any consumer checking accounts opened Feb. 1, 2014, or later. It said it is finalizing a transition plan for current customers using the program, saying current customers will be able to continue using the service until mid-year.

U.S. Bank mentioned the regulators' guidelines in its announcement, but Wells Fargo did not, saying only that discontinuation of the service is not expected to have a material impact on the company.

With deposit advances, the bank fronts the borrower an advance on his or her next direct deposit. Then, the next time sufficient funds are deposited into the borrower's account, the bank takes back its money, along with a fee.

Surveys have shown that consumers like deposit advances and similar payday-loan offerings. But consumer advocacy groups and some lawmakers have called for an end to these products, saying they are predatory and can trap consumers in a debt cycle.

Have you ever tried one of these products?

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Maria Guenther
April 16, 2014 at 3:52 pm

I am upset with the decisions to stop cash advances. I think they want customers to use other payday loans which charge astronomical fees. The banks are making money on us so why else would they stop their cash advances.

April 05, 2014 at 7:19 am

I've used payday advances maybe 2 or 3 times in my life. It's a bummer that the option won't be available because it's nice to have it in case of a really unexpected emergency where you need cash right at the moment but your next paycheck isn't coming in for a while. I used advances to put the deposit on my new apartment because I found it completely last-minute.

That's what they're for. Anyone who is using payday advances or loans on a regular basis is wasting their time and money. If you need to do this every single pay check, how is that different from just slowly saving enough money to catch up and paying bills regularly.

For example: The woman who said she does this every month and spends $100 a month ... are you insane? You honestly can't just be 2 weeks behind on one or more of your bills and slowly catch up with that $100 you're wasting every month? It's certainly possible but you'd have to be egregiously irresponsible to get yourself in just the right situation so that your only recourse is a never-ending chain of payday advances. It just doesn't make sense to do that; the advance is only worth it if you have an unexpected immediate need for money that you would otherwise have to wait for.

Ultimately this should only inconvenience people. If your financial plan relies on payday loans and advances with horrible interest rates then you need to plan differently; I can all but guarantee you that there's a better solution because these types of loans are completely worthless except in very specific, time-sensitive situations. So maybe this is actually a good thing; it will force some people to get seriously-needed help with their financial planning.

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