Three major banks, including Wells Fargo, U.S. Bancorp and Fifth Third Bank, announced last week that they would stop offering deposit advance products, a kind of payday loan that came under criticism by regulators last year.
The banks announced the move last week. Wells Fargo said it would discontinue its deposit advance service on Feb. 1, though existing customers will be able to access the service until mid-year. Both U.S. Bank and Fifth Third will discontinue the service after Jan. 31, though U.S. Bank customers will also have access to the service until May.
“We recognize our customers’ need for short-term, small dollar credit,” Kent Stone, the vice chairman of consumer banking sales and support at U.S. Bank, said. “We are committed to finding new solutions that meet the needs of all of our customers and fit within the current regulatory expectations.”
A study by the CFPB showed that deposit advance products pose a number of concerns related to consumer safety. Deposit advance products are small-dollar, short-term loans offered by banks to customers who have set up direct deposit. The customer is allowed to take out a small loan, which is then repaid from the proceeds of recurring direct deposits.
Last year, the FDIC and OCC issued regulatory guidance to banks offering the products. The regulators said that while they encourage banks to meet consumers’ short-term credit needs, the products pose a number of threats to consumer financial safety, including concerns related to high fees and recurring usage.