Wells, U.S. Bancorp to stop making co...

Wells, U.S. Bancorp to stop making contentious short-term loans

There are 1 comment on the Reuters story from Jan 17, 2014, titled Wells, U.S. Bancorp to stop making contentious short-term loans. In it, Reuters reports that:

The so-called deposit advance products are similar to payday loans, in that they are both small, short-term loans and have been criticized by consumer activists for their high fees.

Join the discussion below, or Read more at Reuters.

“I am always right.”

Since: Oct 09

Former MN Taxpayer

#1 Jan 18, 2014
Interesting article.

The recap above alludes to the decision being the result of criticisms by "consumer activists". Yet the article clearly states that it is in response to changes in government regulations.

And the big question is: Where will the poor people go to get short term loans now? To the local pawn shops? Or their local loan shark?

This is a good example of what happens when government steps in and over regulates the private sector.

Think price controls back in the Jimmy Carter era. Legitimate businesses leave that market sector. Black and grey market operators prosper.

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Wells, U.S. Bancorp to stop making contentious short-term loans

By Peter Rudegeair
Fri Jan 17, 2014 11:17am EST

(Reuters)- Wells Fargo & Co (WFC.N) and U.S. Bancorp (USB.N) said on Friday that they would stop offering customers a type of small, short-term loan that has come under regulatory scrutiny.

The so-called deposit advance products are similar to payday loans, in that they are both small, short-term loans and have been criticized by consumer activists for their high fees. These loans are automatically repaid out of future direct deposits into checking accounts. A typical deposit advance loan can carry fees of $1.50 to $2 for every $20 borrowed.

In November, the Office of the Comptroller of the Currency, which regulates national banks, and the Federal Deposit Insurance Corp said they would make rules for deposit advance products more stringent. The regulators said they planned to impose additional limits such as requiring a one-month cooling-off period between the time one loan is repaid and another can be extended.

Wells Fargo, the fourth largest U.S. bank, said it will no longer make its direct deposit advance product available for customers who open accounts after February 1, though existing customers can use the product until the middle of 2014.

U.S. Bancorp, a Minneapolis, Minnesota-based bank with $361 billion in assets, will cease offering its checking account advance product to new customers on January 31 and existing customers on May 30.

Both banks said the decision to stop providing deposit advance loans was in response to the OCC and FDIC's guidance. They did not disclose the revenue they get from the product, but it is a small part of their overall business.

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