What’s The Difference Between Early Access and Ready Advance Loans?

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A recent study by the Center For Responsible Lending (CRL) revealed that some of the largest banks in the United States are offering their customers advance-deposit loans with interest rates as much as 200 to 300 percent.

These advance-deposit loans are essentially bank payday loans — they are offered as a short term loan to be used in the event of emergencies and have names like “Early Access” or “Ready Advance” loans or are even referred to as direct deposit loans. While the prospect of readily available money from an established lender is attractive, many consumers miss that such loans can have an annual percentage rate (APR) that averages between 225 to 300 percent.

It’s also not a one-time loan. The non-profit organization’s report shows that the average bank payday borrower took out almost twenty loans. Additionally, if the deposit against which the customer is borrowing doesn’t cover the amount of the loan plus interest, the customer can run into overdraft fees and even more interest.

The Consumer Financial Protection Bureau (CFPB) does have oversight into advance-deposit lending as their authority covers storefront and bank payday lenders (so long as the lenders have more than $10 billion in assets). Their oversight is for both supervision of the lenders and enforcement.

While the report by the CRL looked at a sample of 66 advance-deposit loans, a broader study by the Pew Charitable Trusts revealed that, in the United States, 12 million people use payday loans each year (their survey focused on storefront and online lenders, however, not banks). On average, borrowers took out a short-term loan to cover basic expenses for living, not for emergencies. Also, on average, the borrowers were in debt for about half the year, spending over $500 on interest alone for their loans.

Critics of this form of lending (as noted in the Washington Post) believe that the extraordinarily high interest rates lead to a debt cycle. It can be very difficult for someone to withdraw the average $375 loan and to pay back the loan plus a possible 300 percent interest rate, even when the loan is against a paycheck deposit. While banks have this loan option available, they don’t promote it in favor of other loan solutions due to the risks involved to the customer (also, there are additional financial solutions, such as a secured loan or an unsecured loan that have more manageable interest rates and terms).

You can view the CRL’s report in full here and the Pew Charitable Trusts’ survey here (please note that you will need Adobe® Reader® to view both documents).