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People who might never turn to a storefront payday lender for an emergency loan can now get a paycheck advance from many big banks. Not everyone celebrates the trend.

“This is loan-sharking,” said Kathleen Day, spokeswoman for the Center for Responsible Lending, which has been tracking these high-cost loans. “It doesn’t make any sense to give people a loan they can’t afford and that leaves them worse off.”

The four major banks that offer the loans -- Wells Fargo, U.S. Bank, Fifth Third Bank and Regions Bank -- say that assessment isn’t accurate. They insist their versions are typically less expensive than storefront or Internet payday advances and provide a valued service to customers.

Some of those customers agree. Amy Dykstra of Davis, Calif., said she used payday advances from Wells Fargo as well as from a credit union. Wells Fargo charges $7.50 for each $100 borrowed, which translates into an annual percentage rate of 274% for a 10-day loan. The credit union’s terms were much more generous, with an annual percentage rate of just 15%.

“Ultimately, I am responsible for how I spend money, borrowed or otherwise,” Dykstra, a client services representative at a veterinary clinic, wrote on my Facebook page. “I won't need to do it again because I've changed my spending behavior, but I do believe it can be a good resource when used appropriately.”

It’s a resource that barely existed a generation ago, when there were only a handful of payday lenders. Thanks to deregulation and consumer demand for short-term credit, the number of payday outlets in the U.S. soared to over 24,000 by 2007 -- which at the time was about as many outlets as McDonald's, Burger King and Wendy’s had in the U.S., combined.

The lenders discovered big profits in what are supposed to be short-term loans. Customers write a postdated check to be cashed on their next payday, typically paying $15 to $17 for each $100 borrowed. That translates into annual interest rates of 391% or more for a two-week loan.

Like many others, Marie Coffman of Bloomington, Ill., found payday lenders a cheaper option than overdrawing her bank account. Until regulators halted the practice, many banks automatically enrolled customers in “bounce protection” services that allowed over-limit transactions and then levied $25 to $35 bounce fees for each one.

“I used one of those payday loan places twice a few years ago,” wrote Coffman, a district manager for an online advertising service. “At the time, the fee was less then a bounced check, and I paid them both back on the next payday.”

For many borrowers, though, the loans are anything but short. Unable to cover their postdated checks on payday, they roll over their loans for another two weeks and pay another fee. The typical payday loan borrower remains in hock for more than half the year, with an average of nine transactions, the Center for Responsible Lending says.

Although payday advances offered through banks are somewhat cheaper, with interest rates averaging 225% to 300%, the pattern of repeated borrowing is similar, Day said. A report released last month by the center found the median bank payday borrower took out 13.5 loans in 2011, and over one-third of borrowers took out more than 20 loans. Payday advance users were twice as likely to incur overdraft fees as other customers, since banks typically take the loan amount automatically from their checking accounts, whether or not there’s enough cash to cover the payment.

Far from solving people’s financial problems, Day said, these loans just create more.

“The loan is problematic from the start, and it just gets worse” as people roll over their debt, incurring ever more fees, she said.

Payday lenders suffered a blow in 2007 when the Department of Defense capped interest rates on loans to service members at 36%. The outlets clustered around military bases disappeared virtually overnight. Today, about 20,600 payday loan locations remain, according to the Community Financial Services Association of America, the trade organization that represents payday lenders. (By comparison, there are about 20,800 Starbucks locations worldwide.) In addition, 15 states have banned the high-cost loans.

Image: Liz Weston

Liz Weston

So far, most federal regulatory scrutiny of payday loans has been focused on the storefront and Internet operators. But that may change. The FDIC and the Consumer Financial Protection Bureau are scrutinizing how some big banks are enabling online payday lenders to skirt state laws by giving the lenders access to borrower bank accounts in states that have banned payday loans, according to the The New York Times. In addition, CFPB chief Richard Cordray put big banks on notice last year that the CFPB would be looking at their payday advance practices.

Wells Fargo, which has offered payday advances since 1994, typically offers the lowest-cost loans of the four. U.S. Bank, Regions and Fifth Third charge $10 for every $100 borrowed, although Regions offers a break for repeat customers: those who remain enrolled in its “Ready Advance” service for 12 months can see their fee drop to $7 (or 70 cents cents per $10 advanced).

In any case, most people have access to better options than either traditional or big bank payday lenders. Among them:

  • Employers. Some companies offer workers payday advances, typically without charging fees or interest.
  • Credit unions. A payday advance from a credit union can be dramatically cheaper than one from a bank, storefront operation or the Internet. Many credit unions also make an effort to help members get off the short-term loan train by requiring them to put a portion of their paychecks or pay advances into a savings account.
  • Credit cards. A cash advance from a credit card isn’t cheap, with rates typically starting at 21% and no interest-free grace period. But that is far less expensive than the typical payday loan, and only minimum payments are due, rather than having to pay new fees every pay period.
  • Community resources. Nonprofit credit counseling agencies typically offer low-cost or free budgeting help. Churches and other faith-based organizations may provide emergency assistance and help with bills. Government programs offer low-income people help with utility bills, living expenses, child care costs, housing and a variety of other expenses.

Ultimately, of course, a cure is better than a quick, expensive fix. Reducing living expenses, earning more money and setting aside even a small emergency fund can prevent the need for a payday loan. The ready availability of payday advances obscures the fact that if you need a loan to get to your next paycheck, there’s something seriously wrong with your finances.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.

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