Regions Bank has launched a program to target consumers who use nontraditional means to move their money around instead of banks.
The program, called Now Banking, gives customers the ability to cash any check, perform money transfers and reload prepaid debit cards.
Customers also can secure short-term loans, more commonly called payday loans, directly through Regions in a program called Ready Advance.
"We found that our customers had to go to an alternative financial service provider to get those services, and that was an eye opener for us," said John Owen, senior executive vice president and head of consumer services for Regions. "We are trying to reach a broader audience."
The Birmingham, Ala.-based lender estimates that 23 percent of its customers are also customers of alternative financial services such as check cashing, money order and payday lenders. That's not counting the 10 percent of Tennessee customers who don't use banks at all, according to a 2009 Federal Deposit Insurance Corp. survey.
While those who are "underbanked" may cut cleanly across socioeconomic lines, the "unbanked" tend to be poor minorities, according to the survey.
A significant number of the unbanked are Latino immigrants, the federal agency said.
As Regions finishes rolling out Now Banking through the end of the first quarter, it hopes to capture a share of the unbanked and underbanked market. Ninety percent of Regions branches offer the services at more more than 1,700 locations in 16 states.
Regions bills the most controversial of its new services - payday or direct deposit loans - as a safer alternative to nonbank lenders. The bank's Ready Advance is less expensive than most payday loans, but it's also only available to customers who have been with the bank for nine months or more.
But Kathleen Day, spokeswoman for the Center for Responsible Lending, worries that banks are pushing a product that hurts consumers more than it helps.
"They call them direct deposit advance, but they are payday loans with the same high cost and structure that traps people into a cycle of debt," Day said.
Since the bank takes its money first, repaying itself out of a customer's direct deposit, borrowers can't fall behind on their loans but could be short on their other bills, Day's group argued in a letter to federal regulators.
More than 250 consumer groups wrote to regulators opposing bank-based payday lending.
"Ultimately, payday loans erode the assets of bank customers and, rather than promote savings, make checking accounts unsafe for many customers," Day said.
Bank payday loans carry an annual percentage rate of 365 percent based on a typical 10-day loan, and bank payday borrowers are in debt for an average of 175 days in a year, according to a study by the Center for Responsible Lending.
But Regions contends it is doing a favor for customers who would otherwise be paying higher interest at other lenders.
A Regions survey found that a broad spectrum of people, not just the poor, used nontraditional banking services at least occasionally.
The bank said 36 percent of nontraditional customers have incomes of less than $50,000, 31 one percent reported income of between $50,000 and $100,000, and 20 percent earned of more than $100,000.
"Feedback on Ready Advance has been very positive," Owen said. "They'll say, 'I was getting this loan through such and such company, and I was paying double what I'm paying with Regions.'"
Regions charges $10 per $100 loan, compared to an average amount charged of between $15 and $18 at most other payday lenders, he said.
And almost half the customers enrolled in Regions' new offerings were previously unbanked customers, who had formerly been at the mercy of nonbank lenders, Owen said.
To continue to bring customers into the banking system, Regions is considering reducing the waiting period from nine months before a customer can enroll in payday banking, and introducing savings incentives as well.
But Owen says the payday loans are just a small portion of Regions' new offerings. He's most proud of giving customers the ability to cash any check, perform money transfers and reload prepaid debit cards.
Prepaid cards are perfect for parents who want to keep college-bound children on a short leash, and the check cashing and money transfers broaden the bank's product offerings for business owners or immigrants who need to send money to family in other cities, he said.
"We will take a personal check, two-party check, insurance check, anything you can show up with," he said. "The way we look at it as a company, the primary products we offer in this sphere are the Now Banking products; the Ready Advance is just a small part of this."