A lawsuit accuses Fifth-Third Bank of misleading customers about the true cost of the payday loans it has issued.
The annual percentage rate on early access loans may be 15 times higher than fifth-third claims, according to a complaint filed by two fifth-third borrowers.
The lawsuit seeks class action status and could affect thousands of consumers in Ohio and seven other states where Fifth Third offers the loans.
Early access loans, like traditional payday loans, are granted on the consumer’s next paycheck. Fifth Third charges customers with direct deposit accounts a $ 10 fee for every $ 100 borrowed, an annual percentage that the bank advertises as 120%.
The rate assumes that the consumer has 30 days to repay the loan. But the actual APR can reach 1,825%, according to the lawsuit, because Fifth Third repays itself from the customer’s next direct deposit, even if the deposit arrives just days after the loan is granted.
Liz Wetter, spokesperson for the Cincinnati-based bank, said Fifth Third is not commenting on the pending litigation.
As states like Ohio try to get rid of payday loan stores and their triple-digit interest rates, some banks have entered the business of short-term, high-cost loans.
A 2011 National Consumer Law Center guidance note denounced a number of banks, including Fifth Third, for offering payday clones, short-term loans with triple-digit interest rates “disguised as a fee-based pricing, ”which is refunded from a consumer’s next paycheck or social security deposit.
The high cost, coupled with the short repayment term, makes it difficult for consumers to repay loans without borrowing again, and many studies show that the average customer takes about eight loans per year.
Cleveland attorney Stuart Scott has filed a lawsuit in federal court in Cleveland on behalf of Fifth Third clients. He argues that while payday lenders justify the high risk-based cost of loans, banks cannot make the same argument as they require borrowers to have checks deposited directly.
“These are much less risky loans [for banks] because the money is just in the bank, ”Scott said.
One of the plaintiffs, William Klopfenstein of Royal Oak, Michigan, took out a series of payday loans in 2011, ranging from $ 150 to $ 400. Fifth-Third debited the loans and fees from his account when his next check was deposited directly, often within days.
Klopfenstein’s bank statements showed all loans were 120% APR, according to the lawsuit. But actual APRs ranged from 913% to 1,825%, according to the lawsuit.
Another plaintiff, Adam McKinney of Lanesville, Indiana, suffered similar costs, according to the lawsuit.
APRs include interest and fees calculated over a year and are intended to allow consumers to compare the cost of loans regardless of how they are packaged.
The suit argues that the bank is deceiving consumers by presenting them with an unrealistic APR.
Scott argues that although loan costs are presented as fees, they are actually interest in disguise to bypass usury limits.
The lawsuit accuses the bank of fraud against its customers; breach of contract; violations of state interest rate ceilings, conversion; and unjust enrichment.
He is asking the court to declare the loans abusive, reimburse consumers and award punitive damages.
Fifth Third Bank is a state chartered bank, but its consumer products are supervised and regulated by the Consumer Financial Protection Bureau.
The office recently launched an investigation into bank and non-bank payday lending practices.
The law prohibits the office from setting interest limits on payday loans. But consumer groups like the Center for Responsible Lending have encouraged the bureau to exercise its authority in other ways – for example, by demanding that payday lenders and the few big banks that offer payday loans give consumers more money. time for repayment, according to the spokesperson for CRL. Ginna Green.
“Ultimately,” said Green, “a payday loan is a payday loan. It doesn’t matter if you get it at Fifth Third Bank or [payday store] Advance America. “
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