Banks offering deposit advances say they are reviewing their options after regulators in November warned that the advances present "significant consumer protection and safety and soundness concerns."
In late November, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. finalized guidelines outlining standards that banks should meet if they choose to offer deposit advances to consumers.
For instance, among the guidelines is a provision for a "cooling-off period," where a bank should wait one payment cycle (usually a month) after one deposit advance is repaid before another advance is offered.
The idea behind that provision is to help keep consumers from becoming trapped in a cycle of multiple loans.
But some banks, such as Wells Fargo and U.S. Bank, have yet to make changes to their deposit advance offerings as they review the guidance from regulators.
For example, Wells Fargo's website says that customers may use deposit advances for six consecutive statement periods.
"We've received the guidance from the OCC, and we are definitely reviewing it as we make business decisions," Wells Fargo spokeswoman Richele Messick said. She said Wells Fargo has been offering deposit advances since 1994 and believes it's a service that customers need.
"We're very upfront with our customers that this is an expensive form of credit," she said. She added that "no one's really been given a timeline for compliance with (the guidance)."
U.S. Bank also said it is working "closely with regulators as we plan the next steps, following the final guidance issued late last year," according to an email from spokeswoman Teri Charest.
In its guidance, the FDIC said banks should be aware the agency would "take appropriate supervisory action to address any unsafe or unsound banking practices associated with these products, to prevent harm to consumers and to ensure compliance with all applicable laws."
Deposit advances are short-term loans that banks offer customers who make recurring direct deposits into their accounts. Deposit advances are generally for small amounts of money.
Basically, the bank fronts the borrower an advance on his or her next direct deposit. Then, the next time sufficient funds are deposited into the borrower's account, the bank takes back its money, along with a fee.
Surveys have shown that consumers like deposit advances and payday loan offerings. But consumer advocacy groups and some lawmakers have called for an end to these products, saying they are predatory and can trap consumers in a debt cycle.
Right now, banks offering the advances need to figure out if and how they need to change their products, and how quickly.
And FDIC guidance also leaves questions for the consumers who use or rely on deposit advances.
Have you ever used a deposit advance? Share your experience in the comments.
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