Wells Fargo's direct deposit advance - a good way to stay broke

Many of us have our paychecks directly deposited to our banking account. Many of us run out of money before payday. Now Well Fargo has gotten into the payday loan business with the direct deposit advance, which allows customers to tap into their paycheck early, for a hefty fee. This offering, like tax refund advances, is really a loan; a very pricey loan.

To its credit, the bank's service agreement repeatedly states that "This is an expensive form of credit." In fact, you'll pay a finance charge of $2 for each $20 advanced, which it claims works out to an APR of 120%. However, the terms require repayment in 35 days. The way I think of APR, a vig of $2 on $20 for 35 days comes out to around 120% per month.

The bank will automatically deduct what you owe from the next electronic deposit to your account, not just your paycheck. If you want to repay by mail, that will cost you an extra $100 set-up fee. You can also set up a payment plan, which is a good way to stay broke.

Some other banks, such as US Bank, offer a similar service under different names, such as checking account advance.

Well Fargo suggests that, "The service is designed to help our customers meet their short-term borrowing needs. Appropriate emergencies might be a car repair, medical care for you or your family, or travel expenses in connection with your job," all good reasons, I suppose. However, if you're so broke that you can't cover these from your rainy day fund, take that as a sign that you're teetering very close to disaster.

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