Three big U.S. banks, with others likely to follow, are getting out of the “deposit advance” business, in which consumers seeking short-term cash can be hit with high fees amounting to as much as 300 percent annual interest.
Wells Fargo & Co., Fifth Third Bank and U.S. Bank said Friday that they will stop offering deposit advances.
Wells Fargo was the largest bank offering the costly, low-dollar loans. Regions Bank earlier announced an end to deposit advances.
Last year, regulators placed tough restrictions on these loans.
Deposit advances provides customers with small amounts of cash between paychecks and then pay it back, plus a fee, when their next scheduled direct deposit.
The fee for a typical deposit advance lasting 12 days yields an annual interest rate of more than 300 percent.
The Consumer Financial Protection Bureau says these loans typically have high fees, are repaid in a lump sum in advance of the customer’s other bills, and often are not administered with prudent banking practices to determine the customer’s ability to repay the loan.
Wells Fargo said new checking account customers beginning Feb. 1 will not have access to the service, called Direct Deposit Advance. Existing borrowers of such loans will be able to get them until mid-year.
U.S. Bank said it will end its Checking Account Advance to new customers starting Jan. 31, and will discontinue it for existing customers on May 30.
Fifth Third said it will stop enrolling customers in its deposit advance service after Jan. 31. It will phase out the service to existing customers by year’s end.