Loan documents clearly state an APR of 120% based on the fee schedule. Yet according to a new lawsuit seeking class action status, claims of actual fees of up to and over 1000% APR are alleged. Fifth Third Bancorp has faced multiple lawsuits over fees for its Early Access deposit-advance loans.
What is Early Access? It is essentially a payday loan style product offered by Fifth Third to its existing customers. A basic qualification is that the customer routinely receives direct deposits into their bank account. The maximum loan amount is $1,000.
At issue is the fee itself. Fifth Third states that a $10 fee for every $100 lent equates to a monthly rate of 10% and an annual rate of 120% APR.
At issue is the time length of the loan. For customers who repay the loan in less than a month, their effective interest rate is substantially higher since the fee is the same. Those rates may be in violation of federal and state usury limits, which is what the lawsuits allege.
These short-term loans have traditionally been the bread and butter of payday loan companies. Some state legislatures have enacted laws that ban or substantially limit the fees and activities of payday loan companies.
However, in attempts to find new sources of income, many large and regional banks have begun to offer short-term loans. Regions Bank had utilized a loophole in North Carolina payday loan bans to offer similar loans over the internet to North Carolina residents. It has since ended the program due to efforts by the Center for Responsible Lending and other consumer advocates to curb such activities.
Consumers almost always have better options when they need short-term funding. Even the dreaded credit card cash advance has an APR of about a quarter of the cost of the Early Access loan.
While the short-term loan market is heating up with the inclusion of banks, not all news is bad. For example, North Carolina’s State Employees’ Credit Union provides a similar product with a 12% APR, which is less than a tenth of the cost. Still, this lower rate is an anomoly as lenders vie to gain lucrative market share, utilizing preemption loopholes to sidestep North Carolina’s payday loan ban. One of the best known players is Western Sky Financial, which has faced numerous regulatory actions against its high fees.
All short-term lenders are on notice as they attempt to find the happy medium between increasing profits and avoiding regulatory or legal action. The result of lawsuits like these and other regulatory positions will have a dramatic influence on short-term lending markets as well as its players.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
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