When David Wegner went looking for a checking account in January, he was peppered with offers for low-end financial products, including a prepaid debit card with numerous fees, a short-term emergency loan with steep charges, money wire services and check-cashing options.
“I may as well have gone to a payday lender,” said Wegner, who ended up choosing a local branch of US Bank and avoided the payday lenders, pawnshops and check cashers.
Along with a checking account, he selected a $1,000 short-term loan to help pay for his cystic fibrosis medications. The loan cost him $100 in fees.
An increasing number of the nation’s large banks — US Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers like Wegner with alternative products that can carry high fees. They are expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees.
Banks said that they are offering a valuable service for customers who might not otherwise have access to traditional banking and that they can offer these products at competitive prices.
In the push for these customers, banks often have an advantage over payday loan companies and other storefront lenders because banks typically are not subject to interest rate limits on payday loans and other alternative products.
Analysts said that lending to low-income customers is tricky and that banks sometimes have to charge higher rates to offset risks.
While banks have offered short-term loans and some check-cashing services in the past, they are introducing new products. Last month, Wells Fargo introduced a reloadable prepaid card, while Regions Financial in Birmingham, unveiled its Now Banking suite of products including bill pay, money transfers and a prepaid card.
Regions package is meant to attract the “growing pay-as-you-go consumer,” said John Owen, the bank’s senior executive vice-president, consumer services.
Reaching the so-called unbanked or underbanked population —people who use few, if any, bank services — could be lucrative, industry consultants said. Kimberly Gartner, vice-president for advisory services at the Centre for Financial Services Innovation, said that such borrowers were a $45 billion untapped market.