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Consumer advocates call them debt traps. The banks that offer them call them direct deposit advances and describe them as funds made available for short-term emergencies. Whatever the name, these cash advances have many of the negative characteristics of payday loans. And today, as NPR's John Ydstie reports, U.S. bank regulators took a step toward protecting borrowers.

JOHN YDSTIE, BYLINE: Annette Smith, who's 69 and lives in Rocklin, California, knows first hand how risky direct deposit advances are. She got one in December of 2007 from her local Wells Fargo bank. Smith went to the bank intending to get a small loan to repair her truck.

ANNETTE SMITH: And so I asked in the lobby, you know, my banker, could I possibly make a small loan. And he said we don't make any loans below $5,000.

YDSTIE: But he told Smith: You can get a $500 advance that will be automatically paid off when your next direct deposit comes in. So she went home, got on the bank's website...

SMITH: I point and click, and I automatically had $500 in my account.

YDSTIE: But the loan had to be fully paid back when her next Social Security check was deposited. So on the third of the month, when her Social Security check for a little more than $1,200 came in, the bank took back the $500, plus a $50 fee. That left her with just $700 to pay her rent and her phone and food bills, and she just could make it stretch.

SMITH: You just don't make it through. And so you have to borrow again and again and again.

YDSTIE: Andrea Luquetta, a consumer advocate, says Smith has taken a new $500 advance almost every month since December of 2007.

ANDREA LUQUETTA: And in that time, Wells has given her 62 direct deposit advances and made $2,952.50 in fees just by transferring to her $500 one day, taking it out of her Social Security check when it comes and then giving it back to her because she can't afford to make ends meet the next month.

YDSTIE: Luquetta works for the California Reinvestment Coalition, which promotes equitable access to financial services for low and moderate income people. Wells Fargo declined to comment on Annette Smith's situation or on the standards for direct deposit loans proposed by the FDIC and the Office of Comptroller of the Currency today. In a statement issued along with those proposed standards, comptroller of the currency Thomas Curry said: We have significant concerns regarding the misuse of deposit advance products.

Among other things, the proposed standards would require banks to directly assess the customer's ability to repay the loan before offering them direct deposit advances. They also would require banks to disclose the cost of the loan as an annual percentage rate. They typically run around 300 percent. Regulators also propose to end consecutive monthly loans. Andrea Luquetta likes the changes the regulators are advocating.

LUQUETTA: As a proposal, it's very promising.

YDSTIE: Public comment on the proposals will be accepted for 30 days. Only six big banks currently offer direct deposit loans. They include Wells Fargo, U.S. Bancorp and Fifth Third Bank. None made officials available for interviews today. But U.S. Bancorp issued a statement saying its product had safeguards, and that 96 percent of the customers who use their product are satisfied with it.

John Ydstie, NPR News, Washington.

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