This article originally appeared in The Clarion-Ledger on November 26, 2011.
By Jerry Mitchell

With payday lending and check cashing services growing in popularity, some banks are offering similar services.

Regions offers Mississippians the option of its Ready Advance Program, allowing qualified customers to borrow up to $500 between paydays. The bank also is offering a check cashing service to those who aren't customers.

Regions officials decided in May to start the services after conducting a survey about a year ago and finding 30 percent of its online customers were using nonbank services such as payday lending, check cashing, pre-paid debit cards, electronic bill paying or similar services.

Many customers "told us that they were already using a nonbank advance loan product and would like for Regions to offer a safe, less costly alternative," said Regions spokeswoman Evelyn Mitchell.

The Ready Advance Program charges $1 for each $10 borrowed, and Regions officials admit the annualized percentage rate for such a loan would range from 120 percent to 262 percent, depending upon how long the customer had the loan.

On its website, Regions warns customers: "This could be an expensive form of credit. ... Advances taken must be repaid quickly. Ready Advance is intended to be a short-term product to meet your cash needs. It is not recommended as a solution for long-term financial needs."

These new services come as banks are trying to make up for lost revenue resulting from federal caps on the amount they can charge merchants for debit card usage - about 24 cents per transaction, down from an average of 44 cents. Regions and other banks initially tried to charge customers for debit card usage but backed off in the face of customers' protests.

Unlike traditional payday lenders, though, Regions customers can pay back what they owe in monthly installments - a much cheaper alternative at 21 percent APR.

Ready Advance customers borrowing up to $500 can choose to pay back by next payday or pay in installments over six months.

To quality for the program, customers must have a checking account in good standing for at least nine months, and they can't use the service for more than six consecutive months, Mitchell said.

Everyone who qualifies "receives an invitation to participate in a free, online financial education program, and we report repayment history to the credit bureaus, which helps them establish or rebuild their credit," she said. "Initial feedback from customers indicates that satisfaction with this service is very high."

The National Consumer Law Center has criticized Regions and other banks for "jumping on the payday loan bandwagon," saying it exploits "the struggles of families living from paycheck to paycheck."

Regions officials say their research has found that more than half the customers who use Ready Advance earn $50,000 or more.

Payday lending companies offer a similar assessment: Making payday loans to those who can't repay makes no sense.

The Ready Advance program isn't available to those already in bankruptcy or facing garnishments, and the program requires a one month "cooling off" period if customers have borrowed the maximum for six months.

With some payday lenders, those who get loans sometimes get locked into a cycle of debt, sometimes called the "payday trap," in which they borrow more money to pay off the initial loan.

Earlier this year, Mississippi lawmakers lowered the rates that payday lenders could charge in Mississippi.

Under current law, two-week loans for $250 from payday lenders would be the equivalent of 521 percent APR, said Ed Sivak, director of the Mississippi Economic Policy Center. Higher loans of up to $500 would be the equivalent of 267 percent APR since customers would have a month to repay.

Wells Fargo has been offering a program similar to Regions since 1984.

"It is an expensive form of credit," said Richele Messick, a spokeswoman for Wells Fargo. "It is not intended to solve longer term needs. It is intended for something like 'The car has broken down, and I need a couple of hundred dollars to get me to the job to get the paycheck.'"

Under the bank's Direct Deposit Advance program, customers can borrow up to half of what they receive in direct deposit or $500, whichever is less.

Wells Fargo charges $7.50 for each $100 borrowed, compared to about $17 nationally, Messick said.

The program is not available in Mississippi at this time, and Wells Fargo officials don't know when it will be, she said.

The question often raised is why customers simply don't put what they owe on a credit card, she said.

"Some customers don't have credit cards, or they've had bad experience with credit cards."

These kinds of loans are simply one service that Wells Fargo offers, she said. "Unlike a payday place, we want to have a full relationship with our customers. We want to be there to offer the solutions they need."

Bill Bynum, CEO for Hope Credit Union, offers a program where credit union customers can borrow $500 over six months at 18 percent APR.

"The economy has really forced a lot of people to look for financial options that aren't available through banks," he said.

Mississippians are now "looking for solutions wherever they can find them," he said. "The further away from traditional banks or credit unions, the higher the rates are going to be."