Overdraft penalties can be a major pain for consumers who have trouble balancing their check book. Offered as a “courtesy” from many banks, overdraft protection is available to ensure withdrawals are paid regardless of whether or not you have the money available in your account to cover these transactions. As a result many consumer groups are fighting these fees which can quickly add up to hundreds of dollars. The Federal Reserve has already ordered changes to prevent consumers from paying billions of dollars in fees, and Congress is considering further action which will restrict the banking industry from profiting off  of this cash cow.

It would seem that whenever there is a positive step in one direction to protect the consumer, whatever industry is being regulated tends to come up with an even greater plan to separate you from your hard earned cash. In this case, banks are worried about losing all the money that is currently collected in fees and penalties. To recoup this cash, many lending institutions are offering products like the “Direct Deposit Advance”. This lending product basically enables any consumer who has a solid relationship with their bank as well as a history of direct deposit to “borrow” up to $500 instantly. The name may vary from bank to bank, however the concept is the same, you borrow money in a pinch and pay approximately $10 per every $100 you borrow. The money is repaid automatically when your next direct deposit hits the bank. Depending on how soon after the advance your paycheck arrives, you will be paying the minimum of 120% APR, in some cases much, much more.

When you look at it in those terms, these “advances” are similar to payday loans which have historically charged extraordinarily high interest rates. In addition to high interest rates, both types of loans can all too easily create a cycle of indebtedness that is often almost impossible to escape. When you are borrowing against money that you do not yet have, you will more than likely have to continue the process in order to continue paying bills and other living expenses. If you are unable to repay either type of “loan” you can end up paying obscene penalty fees in addition to having to repay the loan plus interest.

These terms could be considered almost criminal and consumers are urged to think twice before agreeing to any products offered by their bank which come with such a high price tag attached.