Wells Fargo launches small-dollar loan as an alternative to overdrafts

Wells Fargo is rolling out a small-dollar loan option for consumers who are pinched for cash.

The bank's new Flex Loan gives eligible customers access to either $250 or $500 for a flat fee of $12 or $20, respectively, the company announced Wednesday. The loans are available through Wells Fargo's mobile app and must be repaid in four equal monthly installments.

The product makes Wells Fargo the fourth large or regional U.S. bank to introduce an affordable small-dollar loan program, joining Bank of America, U.S. Bancorp and Huntington Bancshares, according to an analysis by the Pew Charitable Trusts. Such products are viewed by many industry watchers, including Pew, as better options for consumers than costly overdraft fees and payday loans.

The launch of these programs shows that "major banks … can offer safe, affordable alternatives to their customers that need the most help," Alex Horowitz, principal officer of Pew's consumer finance project, said in a press release.

Wells Fargo's new loan option — which is currently available in select markets across the country — is one of several overdraft-related policy changes the San Francisco-based company is making this year. 

In January, when Wells first announced plans for a new small-dollar loan option, it said that it would also stop charging nonsufficient funds fees and certain account transfer fees. The bank also pledged to give customers access to direct deposits up to two days early and introduce a 24-hour grace period for customers who overdraw their accounts.

Wells said Wednesday that customers who are short on cash may access a Flex Loan using their mobile banking app. The bank determines eligibility by evaluating customer data, such as the length of time a customer has had a deposit and credit account and how well the customer has managed their accounts, a Wells Fargo spokesperson said in an email. 

Customers who get the green light for a Flex Loan will receive the funds "within seconds" of accepting and setting up a plan to repay it, the company said. Customers may take out one loan at a time and no more than three per year, the spokesperson added.

There are no applications, late charges, interest charges or other fees, the company said.

Of the four large banks now offering small-dollar loans to cash-strapped consumers, U.S. Bancorp was the first to do so. In 2018, the parent company of U.S. Bank launched its Simple Loan, an installment loan of up to $1,000. The Minneapolis-based bank currently charges a $6 fee for every $100 borrowed.

In 2020, Bank of America rolled out Balance Assist, which offers loans of up to $500 for a flat $5 fee, to be repaid in three monthly installments. A year later, Huntington Bancshares in Columbus, Ohio, introduced Standby Cash, a digital-only line of credit up to $1,000. Those loans are free if borrowers agree to pay them back in three monthly installments automatically taken from their accounts.

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According to Pew, the four banks' small-dollar loan fees are at least 15 times lower than the average payday loan.

A decade ago, Wells Fargo and U.S. Bancorp both offered much more expensive short-term loans to consumers in need of quick cash. Those deposit advance loans — which were stamped out by Obama-era regulators — typically carried a $1.50 to $2 fee for every $20 borrowed.

On Wednesday, Wells did not specify the markets where its Flex Loans are currently available, but it did say that the product is scheduled to be available nationwide by the end of the year.