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Gotcha! Beware of ‘fast cash’

Payday loans can be pricey and unforgiving

Consumer Reports magazine: January 2013

Photo: Image Source/Chris and Kate Knor

Several major banks, including Fifth Third, Regions, U.S. Bank, and Wells Fargo, now target some consumers with account advance loans (aka payday loans). Though secured by the customer’s direct-deposit paycheck, the loans incur fees of $7.50 to $10 per $100 borrowed. Regions promotes a “21 percent annual percentage rate” and “No additional annual percentage rate,” but the fine print says that the rate “may be 120 percent or more.” After you use the loan proceeds, repayment is automatically sucked from your next direct-deposit paycheck, Social Security benefit, or other electronic deposit of $100 or more. If you still owe, the rest is automatically taken from your checking account on the loan’s final due date, usually 35 days after origination.

What if the borrower is short the next week? No problem! Simply “make another advance, which would impose another fee,” chirps U.S. Bank. Banks might offer “cooling off” periods, so someone who repeatedly borrows over six months in a row must abstain for one month before resuming. But such measures are “ineffective,” says Consumers Union, the advocacy arm of Consumer Reports, which, with 250 other groups and experts, opposes this type of loan.

Bottom line. Avoid pricey, unforgiving payday loans. If you often need fast cash before payday, contact the Association of Independent Consumer Credit Counseling Agencies, at aiccca.org, or the National Foundation for Credit Counseling, at nfcc.org, for free or low-cost advice.