This article is reprinted by permission from NerdWallet. Wells Fargo, which operates more than 4,700 branches throughout the U.S., has rolled out a small-dollar loan program that offers instant, automated loans received in minutes and with a fraction of the fees typically attached to payday loans.
The bank joins a growing list of major financial institutions — U.S. Bank
Bank of America
Huntington and Trust, to name a few — offering an alternative to the 12 million people who use payday loans each year, many of whom belong to communities systematically denied access to traditional financial tools. Thanks to these programs, a report from the Pew Charitable Trusts’ Consumer Finance Project estimates that annual consumer savings from predatory payday loans will eventually be billions of dollars. “This is one of the biggest developments for financial inclusion in decades,” says Alex Horowitz, principal officer of Pew’s Consumer Finance Project. Payday loans — small, high-interest loans secured with the borrower’s next paycheck — often target people who have few other options for borrowing money. The fees are exorbitant, with annual percentage rates averaging 391%, according to the Consumer Financial Protection Bureau. Meanwhile, traditional personal loans have average annual percentage rates between 6% and 36%. And because they have access to their borrowers’ checking accounts, payday lenders can siphon money to pay back the loan, often before the borrower has had a chance to pay their bills or other lenders. Loans from banks offer relief for people who often have nowhere else to turn in difficult financial times. “Non-bank, high-cost lenders are likely to lose customers to banks. And that’s great news for consumers,” says Horowitz, who authored a recent report on the trend for Pew. Pew researchers project ann …