The OCC published final guidance last week for banks and federal savings associations regarding the risks and regulatory expectations associated with deposit advance products.
Deposit advance products are short-term, small-dollar loans made to customers who have recurring direct deposits at an institution. The loan is repaid from the customer’s next direct deposit.
“The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said. “However, deposit advance products share a number of characteristics with traditional payday loans, including high fees, short repayment periods and inadequate attention to the ability to repay. As such, these products can trap customers in a cycle of high-cost debt that they are unable to repay. As a result, they pose significant safety and soundness and consumer protection risks. Banks must understand and manage those risks, and this guidance clarifies our expectations for doing so.”
A customer is generally eligible for a deposit advance if the account has been open for a certain period of time and the customer has direct deposit set up. The amount of the deposit advance loan is usually limited to a percent or amount of the recurring direct deposit.
The new rules, which apply only to banks regulated by the OCC, adhere largely to the initial proposals put forth by the FDIC and OCC in the spring.