Coincidentally (or not), on the same day the CFPB launched its overdraft fee initiative, previously discussed, 250 national, state and community organizations and individual activists wrote the heads of the CFPB and the federal banking agencies to attack deposit advance products. Both the CFPB in its payday lending exam manual and the authors of this letter treat deposit advance loans as a kind of payday loan. The community groups and activists, at least, seem not to recognize any benefits of either product.
If history is a guide, opponents of deposit advance loans may find a sympathetic regulatory ear. One of the last acts of the OTS before its demise last year was to penalize a small federal thrift for its supposed “unfair” and “deceptive” conduct in allowing its customers to obtain frequent high-cost deposit advance loans. Lost in the OTS’ action was any serious consideration of a few inconvenient facts:
- The thrift’s customers reported extraordinarily high levels of satisfaction with the product. The thrift had hundreds of thousands of deposit advance customers and only a dozen or so complaints, none of which criticized the product’s structure or clarity.
- Manifestly, the thrift’s customers were able to “just say no” to the product, since deposit advance loans are generally repaid in full shortly after origination, leaving consumers with a clear option of whether or not to obtain another loan. Under Section 5 of the FTC Act, a required element for conduct to be “unfair” is that consumer injury cannot be readily avoidable.
Dodd-Frank’s new concept of “abusive” conduct may allow the CFPB even greater freedom than the OTS had to substitute its own judgment for consumer preferences. Hopefully, the CFPB will listen directly to consumers of deposit advance loans and not just to groups and individuals who think they know what is best for them.