A class-action lawsuit filed earlier this month on behalf of several bank customers is taking aim at Fifth Third's (FITB) "Early Access" deposit advance program.
The lawsuit argues that borrowers using Early Access were unlawfully charged too much for the loans under Ohio state law.
Early Access works much like a payday loan. Borrowers can take out up to $750 or $1,000 in some cases, to be repaid out of the customer's next direct deposit. The bank began offering the program in 2008.
Fifth Third says that it doesn't charge interest, but instead requires a $10 fee per $100 loaned under the payday loan-like program. But plaintiffs' say that fee amounts to interest and thus should be capped at the 25% APR limit set under Ohio law for banks.
"They're trying to get by on semantics here. They know very well it was the state's intent was to stop this type of lending," says Daniel Frech, a plaintiffs' attorney representing the customers with law firm Spangenberg Shibley & Liber of Cleveland, Ohio.
"It's scalable to what's borrowed. … In reality, it's interest," he adds.
Law firms Tycko & Zavareei in Washington, DC, and Barnow and Associates of Chicago are also representing the plaintiffs in the case, which seeks to refund all consumer fees up to what would be paid under the 25% interest rate cap, along with an unnamed amount for punitive and exemplary damages.
A handful of large banks, including Wells Fargo (WFC), U.S. Bank (USB) and Regions Financial (RF), offer similar products. However, the lawsuit is unique to Fifth Third because the bank is state chartered and thus subject to Ohio law, whereas most of the other large institutions that currently offer deposit advances are either charted in states with more lenient lending requirements or nationally chartered and thus generally preempted from state law.
Lawyers representing the plaintiffs also argue that even if the court finds the bank's fee is being levied lawfully, the terms of the loan may not be described appropriately to consumers, as the loans are sometimes paid back in a matter of days.
Under the federal Truth in Lending Act, the bank is required to include all fees in its APR calculations, and on its forms it tells consumers that the deposit advance loan has an APR of 120%. However, plaintiffs argue that's only if the loan is paid back after 30 days, even though it's often repaid sooner.
"Because Fifth Third charges a 'fee' of $10 per every $100 advanced, the APR is 120% only if the loan is not paid until 30 days after it is issued. But because Fifth Third, per the
Easy Access terms, pays itself back in full from the customer's next direct deposit, the loan term is almost always less than 30 days — and the loan almost always carries an APR far in excess of 120%," according to the complaint.
The complaint cites several examples where a loan was paid back in two to three days, amounting to an APR of more than 1,800%. It was filed Aug. 3 in the U.S. District Court for the Northern District of Ohio.
A Fifth Third spokeswoman declined to comment.