WASHINGTON — Banks facing lower revenue from debit-card and overdraft fees are ramping up marketing of small short-term loans, prompting regulators to question whether they carry the same risks to borrowers as other forms of payday lending.
The high-cost loans offered by firms including Wells Fargo & Co. and U.S. Bancorp are meant for people who can’t access other forms of bank credit, similar to the clients of storefront or online payday lenders.
Scrutiny of the loans increased Sept. 21, when North Carolina Attorney General Roy Cooper asked Regions Financial to provide data showing that its loans don’t violate the state’s interest-rate cap. That followed a decision in May by the Federal Deposit Insurance Corp. to investigate payday-like products offered by banks, joining an inquiry by the Consumer Financial Protection Bureau.
“They lend money at a high interest rate and get it paid back at the next paycheck,” Cooper said in an interview. “We want to come at this from all angles to prevent these kinds of loans in North Carolina.”
The matter also has found its way into the judicial system. In August, a private lawsuit was filed in U.S. District Court in Ohio, claiming that Fifth Third Bancorp deceived customers about the true costs of its short-term loans.
Traditional storefront payday loans are secured by a check, post-dated to a borrower’s next payday. Online versions require clients to have payments directly debited from their bank account.
