GENESEA COUNTY, Michigan –
A local bank offers its “good” checking account customers an alternative to payday loans with its own short-term loan product.
But it always comes at a high price.
Although Fifth Third Bank’s early access program fees are lower than the annual percentage rates for payday loans, you will pay a high APR to borrow money this way.
Fifth Third, which rolled out the product in Michigan last fall, says loans of up to $ 500 once a month have a 120% APR. The APR is the cost of credit given as an annual rate.
“It’s not meant to be a predatory product, it’s meant to be, especially in the state of Michigan, a product that can help with short-term emergencies,” said Jack Riley, spokesperson of Third Fifth in Southeast Michigan, which includes about half a dozen locations in Genesee County. The bank also has branches in Saginaw, Bay and Midland counties.
Your repayment on the advance occurs when your next direct deposit of at least $ 100 arrives in your account, or the bank will withdraw the amount due at 35 days if no direct deposit has been made.
But if your direct deposit comes in more frequently than that month, experts say you need to be careful and you’ll pay a higher APR for that advance.
Fifth Third charges $ 1 for every $ 10 you borrow, so if you need $ 100 to cover a car repair or medical bill, your short-term loan for a week could cost 520% APR, depending on the. experts.
Fifth Third is the only bank in Michigan known to offer this type of loan. Wells Fargo and US Bank also have similar programs, but they do not have branches in the state.
Lisa Shumpert, 39, of Flint doesn’t do business with Fifth Third and is owned by a credit union, but says banks entering this business on short-term loans might be a good idea.
“I think with some of the advanced places you’re stuck,” she said. “With that, they’re basically going to get your money back.”
The U.S. payday loan industry makes about $ 40 billion in short-term loans (with billions in fees paid by borrowers), issuing loans with around 400% APRs compared to a typical loan of two. weeks.
Michigan law came into effect in mid-2006, capping the amount of a payday loan at $ 600 over a 31-day period and requiring payday lenders to be licensed. The law also set restrictions on the amount of interest and fees that businesses can charge.
Kathleen Day, spokesperson for the nonprofit Center for Responsible Lending, said the center wanted any type of payday loan to be capped at 36% of APR. She called the bank’s payday loan products “under another name” and called the practice “predatory and abusive”.
“We just think anything above a double-digit rate (interest rate) is just too high,” she said. “Anything over 36% is really unnecessary. It’s just rising prices.
Day said that with a direct deposit repayment, a customer who used the loan because they were cash-strapped that month could enter a cycle of debt by having to take multiple advances.
Fifth Third’s Early Access product is limited to a 30-day lead time, said Mark Gates, retail analytics manager for Fifth Third in southeast Michigan.
There is a cooling off period for customers who use the product for several months in a row, and Riley said there are other warranties built into the product so customers “don’t find themselves too stretched out to have the possibility to repay. “
The back of a program brochure also informs customers that the product “is an expensive form of credit and should only be used in situations where you need funds quickly and don’t have access to lesser forms of credit. dear ”.
A spokesperson for the payday loan industry association said it welcomes the competition.
“We always think we can compete with anyone,” said Steven Schlein, spokesperson for the Community Financial Services Association of America, which represents 22,000 convenience stores across the country. “Banking products have rarely been cheaper or more convenient for our customers. “
Riley said Fifth Third’s early access APR is calculated on a 30-day payback period, and research by the bank before the product launched indicated that many people receiving government checks receive them monthly. .
But if someone paid off the advance faster than a month, say a week, the APR would be over 120%, Riley said.
“We designed the program to be a quick, easy turnkey program so they used the 30 day window,” said Riley.
Fifth Third’s Gates and Riley said additional eligible customers are signing up to use the product.
By February, eight percent of eligible customers in Southeast Michigan had signed up to be able to use the product, and by the end of August, more than 20 percent of eligible customers had signed up, Gates said.
Gates and Riley said they don’t have usage statistics for the area.
Gates said the advance is “much more profitable” than writing a check and incurring an overdraft fee, and is cheaper than the APRs found with payday loans.
“It’s a very short-term program and the APR is actually lower than the many fixed costs that are often incurred when you take short-term programs like this,” Riley said.