Wells Fargo prefers to call its program a Direct Deposit Advance. The charge is a $1.50 for every $20 borrowed. Your loan must be paid in full when your next paycheck arrives. So if you get paid every two weeks, the fee on the 14-day loan is the equivalent of an annual percentage rate of more than 180 percent. A 30 day loan is 91 percent.
Annette Smith of Rocklin in the Sacramento area needed to pay for smog repairs and registration on her truck. She didn't have the money. So she went to her bank, Wells Fargo, and wouldn't give her a traditional loan, but suggested instead she might want to utilize a Wells Fargo program called Direct Deposit Advance.
"I didn't have to have collateral. I didn't have to have a credit check and I felt that that was a good service, you know," said Smith.
Wells Fargo let her borrow up to $500. The catch was she had to tie the loan to her monthly direct deposit from social security. As soon as her next check was deposited, Wells Fargo would automatically debit the full loan amount, plus a fee of $37.50.
"My only alternative was to borrow again," said Smith.
I don't know how much Smith makes every month, but her social security check is her only source of income, so that's around $1,000. The loan amount was $500 and the fee was $37.50. That leaves her just $462.50 cents for food, rent and utilities for the rest of the month.
"You're suddenly in a position where you can't make your other expenses, you take out another loan and that cycle goes on and one and on," said Andrea Luquetta with the California Reinvestment Coalition.
This cycle repeated itself the following month, and the month after and the month after. In fact, it's been going on for five years.
Wells Fargo declined an on camera interview, but in an email told us, "During financial emergencies, Wells Fargo's Direct Deposit Advance service provides short-term credit to customers whose accounts are in good standing. It is an expensive form of credit not intended to solve longer term financial needs."
The California Reinvestment Coalition is calling on the feds to impose stricter regulations on the program. They want the APR to be disclosed up front. They want the loan amounts to be limited to $300 -- the same restrictions imposed on traditional payday lenders in California.
"The most dangerous thing is that because they're a bank, people think that it's a safe product," said Luquetta.
Smith knew what she was paying in fees, that $37.50, but she never thought about what that meant in terms of interest rate. She says she didn't know that her annual percentage rate, or APR, on a 30-day loan would be 91 percent. Smith says wells never disclosed the APR to her. We looked on the banks website and could not find the annual percentage rate either.
"I was flabbergasted. I was stunned," said Smith.
She only recently found out about the interest rate charged when reading something she saw from the California Reinvestment Coalition.
"And you know, I had to tell my children and friends," said Smith.
She felt embarrassed and didn't want the same thing to happen to her loved ones.
Annette is working hard to not to have to borrow, but so far hasn't been able to break the cycle. The federal Office of Comptroller and Currency is currently examining Wells Fargo practices under the Community Reinvestment Act. We'll follow this and let you know what happens.