For Consumers Pushed Into Predatory ‘Advance Loans’ By Big Banks, Bankruptcy May Be Best Way Out
Banks are supposed to protect the money we deposit in checking accounts, not rob us of it. But that's exactly what they're doing with new short-term high-interest arrangements known as advance loans.
Big banks such as U.S. Bank and Wells Fargo are increasingly promoting the loans, which are offered through direct deposit checking accounts.
Their target market is consumers who are short on money between paychecks and need a quick infusion of cash to pay the bills. In exchange for the loan, banks require the payment in full after a short period, usually 10 days to a month - plus, on average, a $10 fee for every $100 borrowed.
Sound familiar? It's essentially the same formula as the infamous payday loan, which leads many people to file for Atlanta bankruptcy every year.
Because both payday loans and advance loans require a large payment very quickly, many borrowers end up having to take out a new loan just to pay the steep fees on the first loan. Before long, every paycheck is going to the lender - and the fees keep accumulating.
But while payday loan centers typically recover their payment with a post-dated check, banks can deduct what you owe the minute your paycheck is deposited into your account. If you were planning on making your mortgage payment or covering your credit card bill with those funds, you're out of luck.
Lenders claim the loans are meant to help people in financial emergencies, but critics say banks are simply looking for new sources of revenue to make up for debit and credit card fee limitations.
As more consumers fall prey to advance loans, consumer groups say, it could make checking accounts an unsafe place for money - prompting Americans to close their accounts and rely on expensive credit cards rather than cash.
Of course, even the worst credit cards have interest rates lower than payday and advance loans. It's estimated that the average bank customer ends up stuck in the loan cycle (i.e., owing the bank) for 175 days a year, during which time they may pay a 365% APR.
Whether they stem from a credit card or a predatory loan, high interest rates are a battle that most consumers can't win on their own. When you're stuck in the damaging debt cycle, Atlanta bankruptcy can be the best tool for breaking free.
Depending on your situation, you can either make manageable payments on your debts by filing for Chapter 13 bankruptcy or have most or all of your unsecured debts discharged by filing for Chapter 7 bankruptcy.
Either way, filing for bankruptcy in Atlanta gives you - and not your bank - control over your paycheck.
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'End Bank Payday Lending Now,' Consumer Groups Urge, by Blake Ellis, CNNMoney