U.S. Bank’s new Simple Loan is not complicated, but its ramifications are. Just three months after its introduction, the first-of-its-kind short-term lending product is attracting scrutiny from consumer advocates and competitors. Simple Loan gives millions of U.S. Bank customers who meet certain criteria quick access to as much as $1,000. Borrowers pay off those loans in three monthly installments with interest charges of $12 per $100 or $15 per $100. The numbers compute to annualized interest rates of 70 or 88 percent. Consumer advocates express mixed feelings about the new loans because of the high interest rates. But some in the advocacy and financial communities see Simple Loan as a less-costly alternative to payday loans which, while legal, often trap cash-strapped customers in debt cycles that produce triple-digit interest. Giving borrowers with unanticipated expenses another choice has become even more important as the U.S. Consumer Financial Protection Bureau considers repeal of Obama-era rules controlling payday lenders. U.S. Bank officials said high interest rates are the only way to make a widely accessible short-term loan program sustainable. Officials also said they clearly disclose the high rates to borrowers and explain cheaper alternatives, such as credit cards or lines of credit. “Our goal is to help customers succeed in bridging a gap in an emergency,” said Lynn Heitman, U.S. Bank’s vice president for consumer banking. “We did not set out to set a standard for the [banking] industry.” The U.S. Bank product is “not a way of trapping people,” said Tracy Fischman,… [Read full story]
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