Big banks are getting into the payday lending business, creating competition for the storefront operators and stirring the ire of consumer advocates.
The banks call it a convenience for customers facing unexpected bills. Critics say the banks are luring the unwitting into an expensive cycle of debt.
In the St. Louis market, at least three banks will make customers a payday-like loan through their checking accounts: US Bank, the biggest player in the local banking market, Regions Bank and Fifth Third Bank.
Banks often call them "advance" loans. They typically charge $10 for every $100 lent, and they collect from electronic deposits of paychecks or Social Security. Storefront payday shops charge an average of $17 for a two-week loan of $100, according to figures from the Missouri Division of Finance.
Now, consumer groups are aiming the same flak at banks as they aim at payday lenders. The main concern is not a $10 charge on a $100 loan; it's that customers often can't afford to pay their family bills after the loan and fees are deducted from their checking accounts. So, they take out a new loan.
That's what happened to Natalie Hill of south St. Louis, who says she borrowed several times from US Bank.
"I probably never would have gone to a payday loan store, but the bank made it so much more convenient to just click on the computer," she said.
Hill earns about $30,000 a year, which means living paycheck to paycheck. She took out her first loan to pay a utility bill.
"I thought, 'These are decent people. They're the bank. They're not one of the bad guys who set up shop in the middle of the night,'" she said.
But the loan payment left her short on other bills, so she had to take another loan, at another 10 percent fee. The cycle repeated and it became a habit. "You're short for the rent, the car note. Once you go in there, you never get ahead," she said.
Eventually, she decided to "bite the bullet" -- cut expenses to the bone so she could stop borrowing.
Consumer advocates say her story echoes the payday loan business.
"If you don't have $300 on Tuesday, you won't have $345 in two weeks," says Rep. Mary Still, D-Columbia, who has been waging a rather lonely battle in the Missouri Legislature against the storefront payday business.
The payday loan business is perpetually under fire. In Missouri, consumer groups are gathering signatures to put a referendum on the ballot, sharply limiting payday interest rates.
Meanwhile, some local credit unions have come up with an alternative -- requiring that short-term borrowers make deposits in a savings account with every loan, in hopes of breaking them out of the debt trap.
Regions Bank said its customers are "highly satisfied" with the bank's payday-like loans, which are for amounts up to $500.
US Bank held focus groups to test consumers' reaction to the loans.
"The biggest point they make with us is that they feel much more comfortable asking the bank for an advance," said spokeswoman Teri Charest.
Banks require a customer to have a checking account and a regular direct deposit -- usually a paycheck -- to get a loan. That gives banks an advantage over payday shops; banks have less trouble collecting.
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