With the controversies surrounding the payday lending industry, it may come as a surprise to find out that some of the top banks in the country are beginning to offer similiar loan products to checking account holders. Like the payday lending industry, these short term personal loans based on pay periods and direct deposit will come hand in hand with triple digit APRs.

According to a recent study by Scripps Howard News Service, the cash advance payday lending industry pulls in about $35 billion dollars per year. Surprisingly, the average cash advance customer is middle income middle class, using the short term loans for sudden expenses. This controversial industry has been looked down upon by government agencies due to the higher APRs and fees associated with payday cash advances. Recent studies prove that even with the higher APRs and fees, payday advances are generally lower than bank overdraft or late fees.

Perhaps this is why top banks like U.S. Bancorp, Fifth Third Bancorp and Wells Fargo, have decided to adapt a form of payday advances in their own product ines. The Scripps Howard News Service study claims an estimates $7.3 billion in fees annually from payday loan customers. Many banks, finding themselves suffering from economical hardships may not be able to resist the temptation of that stream of income.

Flint Journal reports that Fifth Third Bancorp says the loans range up to $500 up to once per month come with an APR of 120 percent.  That works out to be about $10 per $100 borrowed. Standard Payday Advance Loans usually range from about $10-$20 depending on the lender, state, and local regulations. Flint Journal reports that Fifth Third Bancorp claims this is a product meant to help in emergency situations on a short term basis.

While rates and conditions vary, the banks offering these short term loans offer very similiar terms. Recent press releases indicate payday lenders welcome the banks to the cash advance market, but not everyone agrees. An assembly of demonstrators called N.C. United Power protesting banks mentioned payday loans as one of the products they consider bad practice.

Payday Cash advances are often the only option for unexpected emergencies as opposed to overdrafting, bouncing checks, or paying exhorbitant late fees. Banks entering the market may help reduce the animostiy politicians have shown towards payday lending. They may be able to pursuade states which have banned these loans completely to re-allow them, allowing options for these state’s citizens.

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…Bill to “Cap” Payday Loans

There have been major setbacks in legislature with a plan to cap rates for payday lenders. Lawmakers think regulation can be done keeping in mind the favors of the industry. The bill proposes to cap rates at 36% and has been assigned to a committee of the lawmakers. It is said that if Payday loans are rolled over many times it may cost the borrower up to 500% annual interest.

The only state which does not have regulations for dealing with payday lenders is Wisconsin. After a hearing on Payday lending, the chairman of the financial committee, Rep. Jason Fields said that a cap on rate is not needed and due to lack of support from Sheridan and the Senate the committee is unlikely to pass a cap. According to him doing something which the Senate will not pass is not justified. Other regulations however will be approved. According to Fields, Poverty was there in Milwaukee even before payday loans.

Although, Gordon Hintz acknowledged his bill might not pass, yet he was of the view that rate cap is best way to regulate the industry. Sheridan’s statement that rate cap went too far was the first setback that Hintz faced last month. Industry said that a 36% cap will throw them out of business.

With four alternative proposals, cap title loans will require lenders to report more information and limit late payment charges and bar on rolling over two week loans thus practically banning it. On Wednesday’s hearing saw much audience with stickers saying ‘I choose payday advance’ lobbying, which was also testified by supporters of rate cap.

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