OCC and FDIC Release Guidance on Deposit Advance Products

The FDIC and OCC proposed for public comment supervisory guidance to FDIC and OCC-supervised financial institutions, respectively, that offer or may consider offering deposit advance products. The proposal is intended to ensure that banks are aware of a variety of safety and soundness, compliance, and consumer protection risks posed by deposit advance products. According to the guidance, a "deposit advance product" is a small-dollar, short-term loan that a depository institution (bank) makes available to a customer whose deposit account reflects recurring direct deposits. The customer is allowed to take out a loan, which is to be repaid from the proceeds of the next direct deposit. These loans typically have high fees, are repaid in lump sums in advance of the customer's other bills, and often do not utilize fundamental and prudent banking practices to determine customers' ability to repay the loans and meet other necessary financial obligations. Most typically, such loans are payday loans.

See: FDIC Proposed Guidance and OCC Proposed Guidance.