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Here's how US Bank describes its Checking Account Advance service:

Introduced in the spring of 2006, Checking Account Advance offers customers the ability to get a fee-based, short-term loan. The bank charges a fee of $2 for every $20 borrowed and the loan lasts 35 days. (The fee is collected from a customerís next direct deposit or payment along with the original amount advanced.)

While US Bank indicates that there is no "interest charge" on top of the transaction fee, they are required to state an annual percentage rate ("APR") for this service.

The rate they calculate is 120%, which evidently takes the 10% fee and assumes that the money is borrowed for 1 month.

The problem with this is that loan amounts are automatically paid back with the amounts of subsequent direct deposits. Thus, it's possible that a person will get one of these checking account advances one day, and have it repaid from a direct deposit the very next day.

Since loan amounts are restricted to one-half of the prior month's direct deposits, the advance will almost always be repaid within two weeks. For persons getting paid bi-weekly, the average time to the next paycheck (which will pay back the principal amount of the loan in full) is just one week.

The APR, assuming the average loan time is 1 week, works out to 1043%.

Nobody's taking out one of these loans because of the attractive interest rate, but customers have the right to this information, and U.S. Bank has no excuse to understate the APR.

Topic UsbankMisstatesCheckingAccountAdvanceInterestRate . { Edit | Ref-By | Attach | Diffs | r1.1 }
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Revision r1.1 - 17 Nov 2007 - 03:48 by EliMantel web search for EliMantel
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