On November 21, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued final supervisory “guidance” to supervised financial institutions that offer or may consider offering deposit advance products. Deposit advance products

are a type of small-dollar, short-term credit product that some depository institutions offer to customers maintaining a deposit account, reloadable prepaid card, or similar deposit-related vehicle. The customer takes out a loan, which is to be repaid from the proceeds of his next direct deposit. Deposit advance products share a number of characteristics seen in traditional payday loans, including high fees; short, lump-sum repayment terms; and inadequate attention to the consumer’s ability to repay.

FDIC Chairman Martin J. Gruenberg said, “The final supervisory guidance released today aims to alert financial institutions to the risks posed by certain deposit advance products and to encourage institutions to meet the demand for small-dollar loans through affordable products that are prudently underwritten and designed.”

Comptroller of the Currency Thomas J. Curry said:

…[D]eposit 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.

“The guidance is intended to ensure that banks are aware of the credit, reputational, operational and compliance risks associated with deposit advance products and have taken steps to mitigate these risks effectively.”

The final guidance issued is substantially the same as the proposal issued by the OCC on April 25. Amendments to the proposed guidance clarify certain provisions in response to concerns raised during the public comment period. “Specifically, language was added to clarify that eligibility and underwriting expectations do not require the use of credit reports and to emphasize that the guidance applies to all deposit advance products regardless of how the extension of credit is offered.”

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