Fifth Third Bank Early Access product gives alternative to payday loan, though at high APR

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GENESEE COUNTY, Michigan —

One area bank is giving its “good standing” checking account customers an alternative to the payday loan with its own short-term loan product.

But it still comes at a high price.

While the fees for Fifth Third Bank’s Early Access program are lower than the annual percentage rates of payday loans, you’ll pay a hefty APR to borrow money this way.

Fifth Third, which rolled out the product in Michigan last fall, says the loans of up to $500 once a month come with an APR of 120 percent. APR is the cost of credit given as a yearly rate.

“This is not meant to be a predatory product, this is meant to be, especially in the state of Michigan, a product that can help out in an emergency situation on a short-term basis,” said Jack Riley, a spokesman for Fifth Third in Southeast Michigan, which includes about a half dozen locations in Genesee County. The bank also has locations in Saginaw, Bay and Midland counties.

Your repayment on the advance comes when your next direct deposit of at least $100 hits your account, or the bank will withdraw the amount due at 35 days if no direct deposit has come in.

But if your direct deposit hits more frequently than that month’s time, experts say use caution, and that 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 percent APR, experts say.

Fifth Third is the only known bank in Michigan offering these types of loans. Wells Fargo and U.S. Bank also have similar programs, but they don’t have branches in the state.

Lisa Shumpert, 39, of Flint doesn’t bank with Fifth Third and belongs to a credit union, but says banks entering this short-term loan arena might be a good idea.

“I think with some of the advance places you get stuck,” she said. “With this, they’re going to basically make you pay it back.”

The U.S. payday lending industry advances about $40 billion in short-term loans (with billions in fees paid by borrowers), issuing the loans with APRs of around 400 percent over a typical two-week loan.

A Michigan law took effect in mid 2006 that capped a payday loan amount to $600 in a 31-day period and requires payday lenders to be licensed. The law also set restrictions on the amount of interest and fees companies could charge.

Kathleen Day, a spokeswoman for the nonprofit Center For Responsible Lending, said the center wants to see any type of payday loan capped to 36 percent APR. She called the banks’ products a payday loan “by another name” and called the practice “predatory and abusive.”

“We just think anything over a double digit (interest rate) is just too high,” she said. “Anything over 36 percent is really unnecessary. It’s just price gouging.”

Day said with a direct deposit repayment, a customer who used the loan because he or she was cash-strapped that month could enter a cycle of debt by having to take out multiple advances.

Fifth Third’s Early Access product is limited to one advance in a 30-day period, said Mark Gates, manager of retail analytics for Fifth Third in Southeast Michigan.

There’s a cooling off period for customers who use the product for multiple months in a row, and Riley said there are other safeguards built into the product so customers “don’t find themselves getting too far extended that they don’t have the ability to pay back.”

The back of a program brochure also advises customers that the product “is an expensive form of credit and should only be used in situations where you need funds quickly and do not have access to less expensive forms of credit.”

A spokesman for the payday lending industry association says it welcomes the competition.

“We always believe that we can compete with anybody,” said Steven Schlein, a spokesperson for the Community Financial Services Association of America, which represents 22,000 payday stores nationwide. “The bank products have rarely ever proven to be less expensive or more convenient for our customers.”

Riley said Fifth Third’s Early Access APR is calculated on a 30-day payback and research the bank did before launching the product indicated many people receiving government checks receive those monthly.

But if someone paid the advance back more quickly than a month, such as a week, the APR would be higher than 120 percent APR, Riley said.

“We designed the program to be a quick, easy, turnkey program so they used the 30-day window,” Riley said.

Fifth Third’s Gates and Riley said additional eligible customers are signing up to be able to use the product.

In February, eight percent of eligible customers in Southeast Michigan had signed up to be able to use the product and at the end of August more than 20 percent of eligible customers were signed up, Gates said.

Gates and Riley said they did not have usage statistics for the area.

Gates said the advance is “much more cost effective” than writing a check and incurring overdraft fees and is cheaper than the APRs found with payday lending.

“It’s a very short-term program and the APR is actually less than the many flat fees that often are incurred when you’re doing short-term programs like this,” Riley said.

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