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Beware of Payday Lenders in Bankers’ Clothing

January 7, 2011

For over a year some national banks have been offering "checking advances" to their cash-strapped customers.  A Checking advance is a short term loan between $100 and $500 which must be repaid within 30 days.  Typically the bank will take all direct deposits made into the borrower’s bank account until the loan is paid.


Critics have described this practice as a thinly disguised “payday loan,” since the loan is intended to provide cash to the borrower until his or her next payday and direct deposit.  With fees of 20% per $20.00 borrowed, the effective annual percentage rate is 130% when the loan is repaid on the thirtieth day.  U.S. Bank, Fifth Third Bank and Wells Fargo are three banks that offer this service to account holders.


The checking advance repayment terms can have unexpected consequences for the borrower.  For instance, taking a checking advance two days before your direct deposit payday means that you have paid the bank between $10 and $50 for a two day loan.  The loan period is simply until the next direct deposit, or the expiration of thirty days.  At the end of thirty days the bank will withdraw the funds from your account, usually without notice.  This withdrawal may cause an overdraft of your account and additional fees.  Unlike payday loans, checking advance customers are unable to control and post-pone payment of the loan until the end of the loan period.  Some banking customers find themselves forced to take a series of advances until they are able to afford to repay the loan.


Bankruptcy can discharge checking advance loans as well as payday loans.  These short term loans can cause significant damage to a families’ budget and cost hundreds of dollars in fees.  It is usually advisable for clients who wish to discharge a bank’s checking advance to open up another account at a different bank.  This will avoid any complications if the bank attempts to take money out of your account to repay the loan.


If you need to get out from under checking advance loans, payday loans, or other high interest loans, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can provide you with relief.  Your bankruptcy attorney can explain the best way to discharge these loans and set you on a course for a better financial future.


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