The Community Reinvestment Act of 1977 requires that FDIC-insured banks be examined and rated on whether or not they are meeting the banking needs in each of the communities in which they are chartered. But a pair of advocacy groups claim Wells Fargo deserves a lowered CRA rating because of loans that smell a lot like payday loans.
At the heart of the matter are Wells Fargo’s “Direct Deposit Advance” loans, which offer customers with certain checking accounts at the bank up to $500 in a high-interest loan in advance of the customers’ next direct deposit.
The loans have been highly criticized. Back in 2009, Tom Barlow at DailyFinance called Direct Deposit Advance “a good way to stay broke.” The bank claimed that the $2 interest on every $20 borrowed (it’s since dropped to $1.50 per $20) worked out to a 120% APR, but as Barlow points out, you only have a month to pay the loan off.
It’s worth noting that Direct Deposit Advance is not available to Wells Fargo customers in the following states and Washington, D.C.: Alabama, Connecticut, Delaware, Florida, Georgia, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia.
In a letter to the Office of the Comptroller of the Currency, which will soon be performing its examination of Wells Fargo’s CRA compliance, the Center for Responsible Lending and the National Consumer Law Center say Wells Fargo can call this loan whatever it wants, “but it is structured just like a loan from a payday loan storefront, carrying a high-cost (averaging 270% in annualized interest) combined with a short term balloon repayment (averaging just 10 days).”
The letter points out to the OCC that, per its own advisory letter about payday lending, the OCC notes that “payday loans” are “also known as ‘deferred deposit advances.’”