Area Banks Muscling in on Payday Loan Territory

Several St. Louis area banks are getting into the payday loan business, including U.S. Bank, Regions Bank and Fifth Third Bank, according to the St. Louis Post-Dispatch.

The banks require that the person taking out the loan has a checking account with them, has direct deposit and automatic withdrawal for the loan, said Thomas Fox, community outreach director for Cambridge Credit Counseling Corp., a nonprofit agency.

The banks are competing with storefront payday loan and check cashing services, charging somewhat lower rates. They charge an upfront fee for a small loan of $100 to $500, which usually is scheduled to be paid off in one to three months.

But Fox suggests contacting a nonprofit consumer credit counseling agency before taking out a payday loan from a bank or a payday loan establishment.

“Our goal is to empower people to take control of their finances and find ways to help themselves,” Fox said. “We do a full financial analysis, help them restructure debt, find alternatives.”

For instance, those behind on their electric bill could call the electric company and make arrangements to pay off their bill, he said.

“You might not need that $100 loan after all,” he said.

To contact Cambridge, call 1-800-235-1407. To contact other nonprofit credit counseling agencies, see the Association of Independent Consumer Credit Counseling Agencies website, or call the AICCCA at 1-866-703-8787.

Often the payday loans cycle customers over month after month, taking out loan after loan. The banks, which call them “advance” loans, are a bit better but still charge high rates, Fox said.

“The banks will charge about $7.50 for a $100 loan,” he said. “It doesn’t sound like much, but when you annualize it, that’s 261 percent interest. That’s less than the payday loan places, but it’s still extremely high.”

St. Louis area banks typically charge $10 for a $100 loan, according to the Post-Dispatch article.

“Taking out the loan might be worth it if your back is against the wall,” Fox said. “Then again, usually something unexpected happened to get you into that situation. Who’s to say that something unexpected won’t happen again?”

According to the Center for Responsible Lending, turnover customers make up 76 percent of a payday loan’s business. The customer often can’t meet payments at the end of the month and is forced to take out another loan.

“The banks typically will cut you off from more borrowing after a couple of months, so they are attempting to control that,” Fox said. The banks also limit how much a person can borrow, he said.

“One in four of the borrowers are is on Social Security,” he said. “That says something right there.”

Fox said banks are trying to offset some setbacks in which federal regulations are keeping them from charging certain fees.