Banks’ exit from deposit advance business is a huge victory for consumers

Regions, Fifth Third, US Bank, Wells Fargo to stop offering deposit advance products

Regions Bank, Fifth Third Bank, US Bank, Guaranty Bank, and Wells Fargo announced this week that they would stop offering deposit advance loans in the near future. These decisions mark a major victory for consumers, as well as Woodstock Institute, the California Reinvestment Project, New Economy Project, Reinvestment Partners, and other advocates who have long called for an end to bank payday lending.
 
“We applaud these decisions to stop offering these dangerous products,” said Woodstock Institute president Dory Rand. “For too long, these products–like storefront payday loan products-- have wreaked havoc on borrowers’ finances and trapped them in a cycle of debt.” 
 
Deposit advance products are small-dollar loans against a consumer’s future direct deposit. A Center for Responsible Lending report found that the typical bank payday consumer each year takes out 18 of these loans, which carry an average Annual Percentage Rate that ranges from 225 percent to 300 percent.
 
The banks’ decisions come shortly after the CFPB’s release of a paper on payday lending and the announcement of stronger regulations on bank deposit advance products by the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC). Although Regions Bank and Fifth Third are regulated by the Federal Reserve Board and, therefore, not bound by these regulations, similar rules may be on the way from the Consumer Financial Protection Bureau, which the Federal Reserve Board has indicated it will defer to.
 
“All banks have a responsibility to consider a customer’s ability to repay a loan before issuing it. We are glad that these banks will no longer directly engage in payday lending and hope that the next step will be for all banks to also get out of indirectly promoting payday lending by providing bank loans and financial services to other payday and high-cost, predatory lenders.” said Rand.