Take a look at these scoundrels! If you find yourself short of cash and need a quick advance of $500, they're going to charge you $50. While that might not sound particularly steep, that actually works out to an annual percentage rate of 260%! Worse, they're charging these usurious rates even though state laws limit interest charges to 36% or so.

Who are these dastards? Some nefarious payday lender like Advance America (NYSE:AEA) or First Cash Financial (NASDAQ:FCFS)? Maybe they're a pawnshop operator like EZCORP (NASDAQ:EZPW)?

Nah! It's none other than Wells Fargo (NYSE:WFC), the bank that has been suckling at the teat of the taxpayer by taking $25 billion in loans from Treasury, scooping up the ragged remains of Wachovia (NYSE:WB), and benefiting from the pain inflicted on the financial services industry.

This is significant because voters handed the payday industry significant setbacks in ballot initiatives in both Ohio and Arizona last week. Payday lender Cash America is being forced to close down 43 shops in Ohio because voters passed a cap on short-term loans at 28%. Yet, not only is Wells Fargo permitted to continue operating there, but it has official sanction because it's "regulated."

Wells Fargo offers a service called Direct Deposit Advance, which permits customers to borrow up to $500 ahead of their paycheck being deposited for a fee of $2 for every $20 advanced -- that works out to the 260% APR mentioned earlier. But don't look on Wells Fargo for that kind of disclosure as it will only be revealed after the borrower gets the loan and receives his bank statement. It's not common for major banks to offer payday loans, but Wells Fargo is not alone.

U.S. Bancorp (NYSE:USB) charges a similar amount as Wells Fargo does but says that the APR is 120%, presumably because they're looking at it as a monthly charge instead of a biweekly one. Fifth Third Bancorp (NASDAQ:FITB) charges $1 per $10 borrow through its Early Access program.

The much-maligned payday loan industry is actually far more egalitarian than their "regulated" brethren even though their risks of default are higher, which ought to justify the higher fees they charged. You don't need to have an account with a payday lender to get a cash advance like you do with Wells Fargo. And while payday lenders have limited means of forcing collections, Wells Fargo has any deposit over $100 automatically deducted from your account to pay themselves back.

The FDIC began a pilot program this year to have traditional financial institutions offer micro loans at interest rates that payday lenders have said are unprofitable. While thousands of loans have been made, it's not a runaway success because the banks are finding it hard to make money just as the payday industry has. One of the things not addressed in the pilot program, though, is providing loans to people with poor credit. Payday lenders do that every day; banks won't loan money to someone who has bad credit.

Because they have the imprimatur of the federal government, banks have the right to employ the same programs payday lenders are castigated for. Perhaps that explains why they've been so vociferous in their support of restrictions on payday lenders: They just don't want the competition.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.