Wells Fargo claims that its Direct Deposit Advance loans are not payday loans, in spite of the fact that they are short-term, high-interest loans that are supposed to be paid off at the borrower’s next payday. One California woman says she assumed that Wells Fargo wouldn’t be steering her into a sketchy payday-like product, but then she ended up going around the debt carousel 63 times in five years — and paying $3,000 in fees on a $500 loan.

Earlier this week, the borrower testified at the Senate Special Committee on Aging’s hearing on payday loans and older Americans.

The 69-year-old told the Senate panel that she had once been a business-owner but identity thieves stole her money and ruined her credit. And even though the scammers were prosecuted, she received no reimbursement, and thus “I’m still poor.”

So when her truck needed some repairs back in 2007, she went to Wells Fargo, where she’d had an account for years, hoping to get a personal loan for a few hundred dollars. The bank said it didn’t offer personal loans for that amount, but she could get a Direct Deposit Advance loan for up to $500.

How it works is that Wells fronts the borrower the money, but the next time sufficient funds are direct-deposited the borrower’s account, Wells takes the money out of the customer’s checking account, along with a fee.

The woman had her $500 that day and when her next Social Security check was direct-deposited later that month, Wells took out the $500 loan amount plus a $50 fee.

“The $550 that Wells Fargo took was half of my monthly income,” she testified. “Without it, I couldn’t pay my rent and other expenses.”

And so, as is a common problem with these sorts of short-term loans, the borrower must take out another loan once the first one is repaid. In this case, the borrower had money to repay the loan amount and fee each time, but was not left with sufficient funds to make it through the month.

“A few times I tried to not take out another advance, but to do that I had to let other bills go,” she explained to the Senators. “I never made it two full months without having to borrow after paying the last advance.”

She says that were months were she borrowed less than the $500 maximum, sometimes as little as $200, “but I still couldn’t stretch my Social Security check to pay the whole advance and make ends meet.”

Bills that went unpaid or underpaid would eventually catch up with her and she’d need the full $500 to cover an old loan and her ongoing expenses.

The ID theft had left the borrower with no credit, so she didn’t have the option of paying off the loan with a credit card and gradually paying that amount down. Additionally, the oft-suggested exit strategy of asking family members for money was a no-go.

“I could not borrow from my kids who were themselves struggling,” she explained. “I never considered going to one of those payday loan stores because I knew they had a reputation for charging really high interest rates… I thought that since banks were required to follow certain laws, they couldn’t do what those payday loans people were doing.”

All the while she was hopping from one foot to the other just to stay upright, no one at Wells mentioned that the bank offers installment loans, where the borrowed amount is paid down over the course of several months. While these loans have their own possible pitfalls, an installment loan would likely not have kept this borrower riding the misery-go-round for so long.

But when she went in to request one, she says the bank told her it was impossible.

With the help of the California Reinvestment Coalition, she was able to bring her issue to Well Fargo CEO John Stumpf at a meeting of the bank’s investors. He promised her that a bank employee would work with her.

But when she went to her local branch, where the manager and district manager met with her, all while a rep for Wells corporate was on the phone with them, she was still told she could not be transitioned into an installment loan.

“The bank people said their system was automated, that there was no way to stop the next withdrawal or fix it so that I could pay in small installments that I could afford,” she testified. “Instead, they offered to forgive my last advance, as long as I never borrowed another advance from them again.”

Now that she’s out from under Wells Fargo’s thumb, she’s made it her goal to raise awareness about how easy it is to sink into the payday loan quicksand, even when it’s not called a payday loan.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.