Banks may expand their short-term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees. 'The smarter banks are trying to resell overdraft protection to consumers as a different product,' said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Mass. Banks including Cincinnati-based Fifth Third Bancorp, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They're known as 'checking advance products.' That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don't have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks. The banks don't call the advances payday loans because it's a 'very tarnished, negative brand,' said Rowe, who estimates U.S. banks may lose from $15 billion to $20 billion in revenue when Federal Reserve rules take effect July 1. The rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances. For consumers, getting a short-term, high-interest loan from a bank might be worse than going to a payday store, said Lauren Saunders, managing attorney with the National Consumer Law Center in Washington. A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities, she said. 'They're looking for ways of replacing their overdraft income,' Saunders said. 'Instead of pricing their products openly and up-front, they seem addicted to back-end ways of making profits.' The Center has represented plaintiffs in lawsuits against banks and hasn't filed any lawsuits over the loan programs, Saunders said. Banks caution customers that the loans are an expensive form of credit. Alternatives 'may be more suitable to your long-term needs,' says a statement on Fifth Third's Web site. At U.S. Bancorp, customers using 'Checking Account Advance' may borrow from $20 up to a preset limit. The fee is $10 for each $100 borrowed. Loans are repaid from the account's next direct deposit. Wells Fargo's 'Direct Deposit Advance Service' works the same way and allows a line of credit of up to $500. The bank, one of the two biggest U.S. home lenders in 2009, has been offering the loans since 1994. The advance is less expensive than a payday loan, and the bank's policies ensure customers don't use it as a long-term solution, said Wells Fargo spokeswoman Richele Messick. 'Wells Fargo encourages all our customers to properly manage their accounts,' Messick said. 'Emergencies do arise, and our Direct Deposit Advance Service can help customers when they're in a financial bind.' Fifth Third, Ohio's largest lender, began offering 'Early Access' loans in September 2008, before the current debate on overdraft fees and the Fed announced its opt-in rules, bank spokeswoman Stephanie Honan said. The bank offers the advances only to existing customers with checking accounts in good standing. 'Our product fully complies with all applicable state and federal banking regulations,' said Honan. U.S. Bancorp spokeswoman Teri Charest declined to comment. National banks making payday-type loans unfairly compete with payday loan stores because they're exempt from state laws limiting interest rates, said Steven Schlein, spokesman for the Community Financial Services Association of America, an Alexandria, Va.-based trade association, which represents payday lenders. National banks like Wells Fargo, U.S. Bancorp and Fifth Third are federally regulated, while payday lenders are overseen by the states. 'What the banks are doing are payday loans,' Schlein said. 'Let's have everybody operate under the same system.' The Federal Deposit Insurance Corp. has made banking access for low-income consumers a priority, agency spokesman David Barr said. A December FDIC survey found there were 17 million U.S. adults with no bank accounts and 43 million 'underbanked,' meaning they may have a checking or savings account yet rely on financial services such as payday loans. The FDIC launched a pilot program in 2008 to encourage banks to make loans up to $1,000 with interest rates at 36 percent or less, the agency said. Thirty-one banks participated in the first year, making 16,000 loans for a total of $18.5 million. Payday stores and Internet lenders make about $42.1 billion in loans a year, according to Stephens Inc., a Little Rock, Ark.-based investment bank and financial research firm. Lenders earned about $7.3 billion on fees from those loans, according to the company. Large banks are looking at the payday loan market because several states have restricted or banned the loans, said Mike Moebs, an industry analyst based in Lake Bluff, Illinois. Ohio passed a law in 2008 limiting payday loan interest to 28 percent. 'If you step in and eliminate the payday lender, someone has to fill that void,' Moebs said. Consumer groups oppose payday loans whether they're being made by a bank or a payday lender, said Jean Ann Fox of the Washington-based Consumer Federation of America. Wells Fargo, U.S. Bancorp and Fifth Third's cash advance products are structured exactly like payday loans, she said. 'If you have a balloon-payment loan for more money than people can pay at one time, at triple-digit interest rates, secured by direct access to your bank account, that's a recipe for a debt trap,' Fox said. Legislation pending in Congress would exceed the Fed's rules, limiting banks to one overdraft fee a month or six a year. Banks collected about $38 billion in overdraft fees last year, said Michael Flores, a management consultant whose clients include Citigroup Inc. and Wachovia Corp. He said the loss of revenue from the rules may be from $10 billion to $15 billion a year. Banks trying to get into the payday loan business face high overhead costs, said Flores, the management consultant. It's difficult for banks to make money on loans under $500, he said. Regulatory requirements may mean waiting a day or two for the loan, when a payday lender in a neighborhood store may give out the money in 30 minutes, Flores said. There are consumers who just don't like banks, said Rowe of Mercator, whose clients include the largest U.S. banks, such as Bank of America Corp., Citigroup and JPMorgan Chase & Co. Consumers don't like to ask bank tellers behind a glass screen for personal help, she said. 'There's an awful moment when they have to come to a teller,' Rowe said. 'It's the most unwelcoming moment. It's absolutely terrifying.' 