WASHINGTON (1/7/14)--Two major banks are offering products with terms that appear to go against guidance issued by federal regulators six weeks ago.
Wells Fargo and U.S. Bank are offering deposit advances that are apparently in violation of rules issued in November by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The regulatory guidance issued by the two institutions bans most payday loans and products that resemble them (American Banker Jan. 3).
The guidance specifically states that banks must allow one statement cycle--usually a month--between the repayment of short-term loans and offers to expand credit.
Wells Fargo's website states that its deposit advances are available for six consecutive statement periods, while U.S. Bank rules, American Banker alleges, permit borrowers to renew credit for nine consecutive cycle statements.
A Wells Fargo spokesperson told American Banker that the bank is reviewing the rule, while a U.S. Bank representative said that it is coordinating plans with regulators. Neither institution commented on whether they have altered their deposit advance programs after the new rules were issued in November.
Two smaller banks--BOK Financial, based in Tulsa, Okla., and Guaranty Bank, based in Milwaukee, Wis.--also currently offer deposit advances that appear to violate the guidance, according to the article. A spokesperson for the former said that the company is evaluating the guidance, while a representative for the latter did not respond to an American Banker request for comment, the article said.
Consumer advocates routinely criticize deposit advances, which, they say, mire borrowers in debt. When the OCC announced its final rules in November, Comptroller Thomas Curry said that the products "share a number of characteristics with traditional payday loans," adding that they "can trap customers in a cycle of high-cost debt that they are unable to repay."
The new guidelines also mandate an evaluation of borrowers' ability to pay without extending the loan--a rule, American Banker said, that would prevent current borrowers from receiving advance deposits.
Some credit unions offer members alternatives to payday loans--short-term lines of credit with annualized interest rates generally capped at the usury ceiling, which has been currently determined by federal rules to be at 18%. National Credit Union Administration regulations can allow credit unions to charge an annualized interest rate 10 points above the ceiling--at 28%. Most credit unions that offer payday loan alternatives also limit fees, offer counseling and encourage members to open savings accounts. (See another lending story in this issue of News Now: Matz in HuffPost: CU Short-Term Loans Can Be a Lifeline.)