OCC, FDIC Finalize Deposit Advance Guidance

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On November 21, the OCC and the FDIC separately issued guidance that establishes numerous expectations for institutions offering deposit advance products, including with regard to consumer eligibility, capital adequacy, fees, compliance, management oversight, and third-party relationships. For example, under the guidance the agencies expect banks to offer a deposit advance product only to customers who (i) have at least a six month relationship with the bank; (ii) do not have any delinquent or adversely classified credits; and (iii) meet specific financial capacity standards. The guidance also establishes, among other things, that (i) each deposit advance loan be repaid in full before the extension of a subsequent loan; (ii) banks refrain from offering more than one loan per monthly statement cycle and provide a “cooling-off period” of at least one monthly statement cycle after the repayment of a loan before another advance is extended; and (iii) banks reevaluate customer eligibility every six months. The final guidance is substantially the same as the versions proposed in April. However, the agencies added language 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. Acknowledging the demand for short-term, small-dollar credit products, and dismissing the concerns that the guidance might restrict such credit, the FDIC encouraged banks to continue to offer “properly structured products” and to develop new or innovative programs to effectively meet the need for small-dollar credit. As a reminder, the Federal Reserve Board did not propose similar guidance, but instead issued a policy statement.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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