Federal Regulators Scrutinize Banks' "Advance Direct Deposit" Loans

Why you really do not want pay day loans: http://www.foxbusiness.com/personal-finance/2012/04/30/federal-regulators-scrutinize-banks-advance-direct-deposit-loans/

This is an exerpt from the article, click on the link above to read the entire article.  The exerpt is about how the loans work:

Say you need $100 to pay your rent or cover some other expense, but don't have the money in the bank. You've been receiving $500 monthly via electronic deposit. The bank agrees to a loan on the assumption that it will be able to automatically draw the full amount plus a fee from your next $500 deposit. There's no check of the borrower's credit history. The loans are popular partly because consumers can gain access to money quickly. The fee usually ranges from $7.50 to $10 per $100 borrowed. Guaranty Bank charges a flat $30 each time a customer applies for the loan. Repayment is required within 35 days. (See chart.)

Consumer groups say that people who use these loans are usually the most needy but least able to repay them on time. The bank repays itself regardless of whether borrowers have sufficient deposits in their bank accounts. This can create an overdraft in the account.