November 21, 2013
Office of the Comptroller of the Currency Releases Final Guidance Regarding Deposit Advance Products
WASHINGTON — The Office of the Comptroller of the Currency (OCC) today published final supervisory guidance for national banks and federal savings associations addressing risks and agency expectations associated with deposit advance products.
Deposit advance products are small-dollar, short-term loans made by banks or thrifts to customers who have recurring direct deposits with that institution. The deposit advance loan is to be repaid from the proceeds of the customer’s next direct deposit.
“The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said. “However, deposit 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 details OCC expectations for any OCC-supervised institution offering deposit advance products to address potential credit, reputation, operational, and compliance risks associated with the products.
The guidance states that examiners will assess credit quality, including underwriting and credit administration policies and practices; reliance on fee income; compliance with applicable federal consumer protection statutes; management oversight; third-party relationships; the adequacy of capital; and the allowance for loan and lease losses. The OCC will take appropriate action to prevent harm to consumers, ensure compliance with applicable laws, and address any unsafe or unsound banking practice or violations of law associated with these products.
The final guidance issued by the OCC is substantially the same as the proposal issued on April 25, 2013. 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.
The attached notice will be published shortly in the Federal Register.