California Senior Testifies about Wells Fargo Direct Deposit Advance Loan
July 24, 2013- Annette Smith, A 69 year-old California resident traveled to Washington DC to testify today to the Senate Select Committee on Aging about her experience using a Wells Fargo’s “Direct Deposit Advance”loan. Smith originally took out one of these loans for $500 in 2007, but because of the repayment terms, she was forced to continue renewing the loan almost every month, which resulted in her paying $2,990 in fees over a five-year period.
Smith explained that in 2007 she asked a teller at her local Wells Fargo branch about a small loan for a repair on her truck. They explained that the bank didn’t make small loans for under $5,000, and suggested she consider using a Wells Fargo Direct Deposit Advance instead.
Smith explained, “Getting the loan was easy- the bank just required me to sign into my account online and transfer over $500 from the bank. Unfortunately, paying it back has been almost impossible. It was tied into my bank account, so Wells Fargo repaid itself the $500 and $50 in fees at the beginning of each month (later it went to $37.50) when my Social Security Check of $1,200 was deposited. After Wells paid itself, that left me about half of my income, which wasn’t enough to pay all of my bills, so then I’d have to take another advance from the bank. The next month, the exact same thing would happen.”
The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency announced proposed rules for these types of loans earlier this year. Andrea Luquetta, Policy Advocate with the California Reinvestment Coalition (CRC), has worked with Annette Smith and cited Smith’s experience in a letter to the regulators that was signed on by 62 other California community organizations.
Luquetta explained, “Annette’s story shows how destructive bank payday loans are for your average consumer.The banks pay themselves back by automatically deducting the money out of your bank account as soon as your income is deposited. In Annette’s case, this meant one loan essentially ended up stretching out for five years.Even worse, consumers are not told what the cost of the loan is (as an Annual Percent Rate). Instead, banks tell customers the cost in terms of fees, so consumers are shocked when they find out they’re paying interest rates of91% to over 300%.”
Wells Fargo and US Bank both offer advance deposit loans in California. CRC highlighted the predatory nature of these loans to regulators who are currently reviewing the two banks and their activities for meeting the requirements under the Community Reinvestment Act. CRC recommendations include changing the structure of the loans, creating stronger “cooling off” protections, and requiring banks to disclose the cost of the loans as an Annual Percentage Rate (APR).
Smith’s testimony can be seen here