On 4/25/2013 the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of Currency (OCC) both released a new proposed supervisory guidance on deposit advance products offered by some banks. Comptroller of Currency Thomas J. Curry states, “The guidance today is an important step toward better protecting consumers and enhancing the safety and soundness of national banks and federal savings associations that may be offering similar products.” The proposed guidance would implement new safeguards to prevent consumers from falling into high-cost debt traps.
Deposit Advance products are short-term, small dollar loans that banks make available to customers with recurring direct deposits with the bank. A recent study by the Consumer Financial Protection Bureau (CFPB) found that deposit advance products and payday loans trap many consumers in a debt spiral because their ability to repay is not taken into consideration. Many consumer advocates say that the deposit advance is nothing more than a payday loan in disguise. According to Dory Rand, President of Woodstock Institute, “Bank payday loans are predatory products cloaked in the credibility of a mainstream financial institution. While it’s high time for bank payday loans to disappear, the OCC and the FDIC’s proposed guidance takes major steps towards reducing the consumer harm caused by these pernicious products.”
The proposed guidance would:
- Require the bank to assess a borrower’s ability to repay the payday loan while covering living expenses.
- Limit the number of bank payday loans offered to a consumer to six per year.
- End Automatic credit limit increases.
- Investigate whether banks’ payday loans violate any existing consumer protection, federal, or state laws.
- Outline the safety and soundness risks bank payday products may pose to banks.
SLEHCRA, along with many other consumer advocacy groups, had recently submitted CRA public comment letters to the OCC voicing concern about Wells Fargo’s deposit advance product. The new guidance also has implications for the St. Louis region as Regions Bank, which has branches in the St. Louis region, offers a payday loan product called Regions Ready Advance. Therefore, SLEHCRA welcomes this proposed guidance from the FDIC and OCC as a way to significantly increase consumer protection both locally and nationally for bank payday products.