Guidance to national banks issued four years ago about “Deposit Advance Products” – including payday and other small-dollar, short-term loans – was rescinded Thursday by the Office of the Comptroller of the Currency (OCC), in response to the new payday lending rule issued the same day by the Consumer Financial Protection Bureau (CFPB).
“The final rule regarding short-term, small-dollar loans submitted to the Federal Register by the Consumer Financial Protection Bureau necessitates revisiting the OCC guidance,” said Acting Comptroller Keith Noreika in a statement. “The OCC may consider issuing new guidance in the future,” he added.
The continuation of the OCC’s guidance, Noreika added, would subject national banks and federal savings associations to “potentially inconsistent regulatory direction” and “undue burden as they prepare to implement the requirements of the CFPB’s final rule.”
“Moreover, in the years since the agency issued the guidance, it has become clear to me that it has become difficult for banks to serve consumers’ need for short-term, small-dollar credit. As a result, consumers who would rely on highly regulated banks and thrifts for these legitimate and well-regulated products to meet their financial needs turn to other, lesser regulated entities, which may result in consumer harm and expense. In ways, the guidance may even hurt the very consumers it is intended to help, the most marginalized, unbanked and underbanked portions of our society.”
The now-rescinded guidance, issued in 2013, did the following (according to an OCC statement issued then):
- outlined appropriate underwriting policies and practices, including establishing customers’ eligibility and assessing their ability to repay while allowing borrowers to continue to meet typical recurring and other necessary expenses.
- required banks to monitor deposit advance products (DAP) portfolios in accordance with established credit risk standards such as capital adequacy, reliance on fee income, adequacy of the allowance for loan and lease losses, etc.
- implemented a “cooling off” period of at least one monthly statement cycle after repayment.
- stated that the OCC would take appropriate supervisory action to address unsafe and unsound banking practices and any violation of consumer protection statutes.