NEW YORK — Payday loans may be coming to a bank near you.
They’re marketed under a different name, but a handful of major banks already let customers borrow against their paychecks for a fee. And there are signs that the option may soon become more widely available.
Banks say their loans are intended for emergencies, and they are quick to distance themselves from the payday-lending industry. But consumer advocates say these direct-deposit loans — as banks prefer to call them — bear the same predatory trademarks as the payday loans commonly found in low-income neighborhoods.
Specifically: fees that amount to triple-digit interest rates, short repayment periods and the potential to ensnare customers in a cycle of debt.
With a traditional payday loan, for example, a customer might pay $16 to borrow $100. If the loan is due in two weeks, that translates into an annual interest rate of 417 percent.
Since the borrowers who use payday loans are often struggling to get by, it’s common for them to seek another loan by the time of their next paycheck. Critics say this creates a cycle where borrowers repeatedly fork over fees to stay afloat.
Banks say their direct-deposit loans are different because they come with safeguards.
Wells Fargo, for example, notes that customers can borrow only up to half their direct-deposit amount or $500, whichever is less.
Its fees are cheaper too, at $7.50 for every $100 borrowed — although that still amounts to a 261 percent annualized interest rate over the typical pay cycle.
