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Wells Fargo Direct Deposit Advance

This article was written by in Banking, Debt Reduction. 17 comments.

Consumerism Commentary reader Yana wrote in yesterday to let me know about some changes in the terms for Wells Fargo’s Direct Deposit Advance service. At first, I was surprised that this service exists. At its core, the credit product offered by Wells Fargo is basically a payday loan, though it comes from a reputable financial institution rather than a shady operation — or shadier, depending on your opinion of financial institutions.

My surprise faded quickly. Wells Fargo’s service is fairly low-risk from the bank’s perspective, particularly when compared with typical payday loans. Companies that pay salaries through direct deposits from companies are generally more reliable than customers who need to show up with their next paycheck. Those who use this service are already customers of the bank and have gone through any necessary background checks. Yet, the bank can still charge over-sized fees, just like payday loan companies. In Wells Fargo’s case, the fee is $2 for every $20 borrowed.

Even within Wells Fargo’s own list of frequently asked questions about the Direct Deposit Advance service, the bank warns customers that the product isn’t right for all customers:

It is important to note the Direct Deposit Advance service is a relatively expensive line of credit intended to assist with short-term borrowing needs and is not recommended as a solution for your long-term financial needs. Alternative forms of credit may be less expensive and more suitable to your long-term financial needs.

If the bank is steering you away from its own product, it’s best to stay away. Tellers might recommend this product to customers who come to the window without any warnings about price, however, and customers who are worried about being able to pay their bills might not be looking online for more information about the product before signing up.

The terms of the Direct Deposit Advance service have changed to further keep customers off the program. Habitual borrowers will find that their credit limit will gradually decrease if they continue to use the service, to the point at which borrowing against a future deposit will be prohibited for a period of time.

Gradually reducing a credit line could be an effective way to move people off of credit, but it could make living difficult for any household that has grown accustomed to having the credit available. A better solution might be counseling with a qualified individual who can help look at the household expenses and develop a plan for rising above paycheck-to-paycheck living.

What do you think of Well Fargo’s plan to gradually ween habitual users of the Direct Deposit Service off this expensive credit product?

Updated March 7, 2012 and originally published December 22, 2010.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 17 comments… read them below or add one }

avatar 1 Anonymous

I was a bit surprised to hear this at first, but in retrospect it makes good business sense. Somebody who needs a direct deposit advance once or twice is a good customer and probably a safe source of extra revenue. Somebody who needs it repeatedly is a significant risk. Wells Fargo would benefit from having a large base of customers who need this once or twice per year rather than a small base that uses it every two weeks. That it also happens to appear to help customers use credit more responsibly is a PR win for the company.

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avatar 2 Anonymous

What are the other average fees for this kind of service at other places?

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avatar 3 Anonymous

Other banks that offer the service (like US Bank) charge the same fee. I know that there are times when this service, although expensive, can fill a need. An extra high heating bill, or an unexpected car repair, can push people who are living on cash into a hole.

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avatar 4 Anonymous

Vinny is gonna be pissed …………… Their Stage Coach might get hijacked ;-)

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avatar 5 Anonymous

10% fee ($2 for $20 borrowed) is more than I would pay. That is one reason to act responsibly with your money.

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avatar 6 Anonymous

Could you post the change in terms notice for this product or supply a link so we can see the specific changes they made? Thanks

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avatar 7 Luke Landes

Here’s a link to the service information. I’m not a customer, so I didn’t directly receive a change in terms notice, but this is what I received second-hand:

Because the Direct Deposit Advance service is intended to meet your short-term credit needs, you will not be permitted to make advances for more than 6 consecutive statement periods up to your standard credit limit. If you do take advances for more than 6 consecutive statement periods, the following statement period your credit limit will be reduced by $100. If you continue to take advances, your credit limit will continue to decrease by $100 each statement period until it equals $0. The credit limit will remain at $0 for one statement period during which time you will not be able to make any advances. Thereafter, your credit limit will be restored to an amount calculated in accordance with the section entitled “Credit Limit”. If you do take a break during any 6 consecutive statement periods by not taking an advance for one statement period, your credit limit will remain at its regularly calculated amount.Please note that the information provided in the Product Guide and Frequently Asked Questions that accompany the Service Agreement should also be read to decrease from 12 to 6 the number of consecutive statement periods in which you will be permitted to make advances up to the standard credit limit.

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avatar 8 Anonymous

How long is a statement period? One month?

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avatar 9 Anonymous

The reason payday loan fees seem “over-sized” is that payday loans are short-term, unsecured loans. As a comparison, Goodwill (a non-profit, tax-exempt charity) charges customers about $10 per $100 borrowed for their “Good Money” payday loan. That’s 252% APR — similar to Wells Fargo’s fee of $2 for every $20 borrowed. Even though Goodwill is only trying to break even, it could not offer the product for a smaller fee. For-profit payday lenders typically charge $15 per $100 borrowed while also paying taxes, employee salaries and health care, rent and overhead costs. The $5 more they need to break even, pay taxes, make a profit and keep their businesses running makes sense for borrowers, employees and the tax coffers.

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avatar 10 kbburro

Not a product that I would use, but fills a need for some. Seems a good thing that the banks offer it even thought its not needed for everyone.

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avatar 11 faithfueledbennetts

I am skeptical. All I can think is ‘what’s in it for them’. A business wouldn’t offer a product or service without the hopes of it being financially productive for them, which in this case means the customer loses when it comes to being ahead financially. But, it all comes to perspective, sometimes people are willing to lose a couple dollars to take care of emergency situations.

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avatar 12 lynn

Businesses need to make a profit. I assume their customers have to pay them back in a timely manner to avoid deeper fees than the original fee.

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avatar 13 shellye

This isn’t something that I would use, but it seems banks are looking for any and all ways to charge customers a fee, so I’m not surprised this type of product is being offered.

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avatar 14 Anonymous

I have found this service useful many times… it does, however put u in a circle that’s hard to get out of… not to mention, if u take the $500 max amount, that’s a whopping $50 fee.

UNTIL NOW… just a month or so ago I noticed they dropped the fee to 7.5%, about, so they must have changed their policy.

It’s worth it to me to get these when it resolves paycheck timing issues, but beware of the circle and bidget the next check to be without the borrowed amount plus the fee.

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avatar 15 Anonymous

@ Shayna: a statement period is the time between one bank account statement to the next… usually about 30 days.

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avatar 16 Anonymous

@Shayna: i.e. if your advance limit is $200, you could take ten $10 advances on 10 different days within that same statement period… it would still be the same fee whether u take it in increments or all @ once… and it will only count for ONE of those” consecutive statements as long as they are taken within the opening date and closing date of that account’s statement. Also, they will automatically take out the amount and fee whenever the next direct deposit comes into that same account.

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avatar 17 Anonymous

It’s better than people going to payday loan places IMHO. And very useful for the occasional help one might need. Although granted, one should have some funds in backup.

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