US Bank ending short-term loan product

US Bank ending short-term loan product following regulatory changes

Associated Press

MINNEAPOLIS (AP) -- U.S. Bank will eliminate a short-term loan offering to meet new federal rules.

The bank is dropping the option after federal regulators set new guidelines last year on "deposit advance" products, which are small-dollar, short-term loans made by banks to customers who have recurring direct deposits. It allows consumers to borrow money against future deposits into their checking accounts.

Banks position them as alternatives to payday loans. But critics say they pose the same risks - high fees and short repayment periods and inadequate attention to the consumer's ability to repay. The fear is that someone can find themselves trapped in a cycle of high-cost debt that they cannot repay.

The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency set new guidelines last year that discourage such loans and urge banks to offer short-term lending options that adhere closer to a consumer's ability to repay.

U.S. Bank Corp., based in Minneapolis, said Friday that it will wind down the loan offering, known as the Checking Account Advance, over several months. According to the bank's website, customer using the program can get an advance of up to $500 that must be paid within 35 days. For every $20 borrowed, consumers would pay $2 — essentially a 10 percent fee for the loan.

It will stop offering the loans to new checking account customers after the end of January and will discontinue it for current customers in May. Customers with an outstanding balance will be offered extended repayment terms. The bank says it will offer other forms of credit to customers who qualify.

The company operates 3,088 banks in 25 states, making it the fifth largest commercial bank in the country.

Regions Financial Corp, a Birmingham, Ala. company that operates Regions Bank, made a similar change earlier this month. The company said it would discontinue its Ready Advance product by the end of the year and highlighted its personal installment loans and other products as an alternative.

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