Big banks being under fire is nothing new. But recently, the FDIC took a critical look at one practice that Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and several other banks all use to offer short-term credit to customers.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, discusses deposit advance products and how regulators are trying to crack down on them. As Dan explains, deposit advances look a lot like payday loans, where banks extend credit in exchange for the promise to get their money back when customers receive their next direct deposits. Big banks have offered deposit advance, as have regionals such as Regions Financial (NYSE:RF) and US Bancorp (NYSE:USB).
But as Dan describes, the FDIC has noted that these products have produced some of the same bad effects as payday loans, including the trap of repeatedly using them and their high fees. Meanwhile, bank advocates note that preventing big banks from doing deposit advance will simply drive those customers back toward traditional payday lenders.
Fool contributor Dan Caplinger owns warrants on Bank of America, Wells Fargo, and JPMorgan Chase. The Motley Fool recommends Bank of America and Wells Fargo and owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.