Regions Bank To Discontinue Payday Loan Program
One of several banks that offer payday loans is getting out of the business.
Regions Bank announced Wednesday that it will discontinue its "deposit advance" product known as Ready Advance.
Deposit advances are small, costly loans that bank customers take out between paychecks, and pay back automatically when a scheduled direct deposit comes through.
As we reported last month, regulators and others said the loans often trapped borrowers in a cycle of debt, with customers using the advances repeatedly to make ends meet — paying a growing tally of fees in the process.
Federal bank regulators cracked down on the products in November. Banks that answer to the Federal Deposit Insurance Corporation and the Comptroller of the Currency are prohibited from offering the loans in consecutive months, and are required to assess their customers' ability to pay them back.
Regions Bank does not fall under the new rules because it's regulated by the Federal Reserve.
Bank spokeswoman Evelyn Mitchell declined to say if the bank changes were connected to regulatory action, more of which is likely in the offing. "This decision was made after careful consideration and was based on a number of industry developments that have emerged since the product was introduced in 2011," she said.
While Regions will stop offering Ready Advance to new users this month, those who owe the bank on an existing deposit advance as of Jan. 22 will be able to get additional advances. They'll be transitioned off the product by the end of the year, Mitchell said.
With its announcement today, the bank unveiled a new option for customers who want small loans.
The Regions Savings Secured Loan, which can be for as little as $250, is an installment loan secured by a savings account or certificate of deposit. The CD loan carries a rate of 3.75 percent over the CD rate, and the savings account loan's rate is fixed at 6 percent.
Customers won't be able to withdraw the funds used to secure the loan until it's paid off, but the deposited money will still earn interest.
Alabama-based Regions Bank operates about 1,700 branches in 16 states, mainly in the south.