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CBA Comment Letter re FDIC's 2013 Guidance on Deposit Advance Products
July 12, 2018
The Honorable Jelena McWilliams
Chairman, Federal Deposit Insurance Corporation
550 17th St NW
Washington, DC 20006
Dear Chairman McWilliams:
The Consumer Bankers Association (CBA) requests the Federal Deposit Insurance Corporation (FDIC) rescind its 2013 guidance on deposit advance products (DAP).
Historically, federal banking regulators have encouraged banks to help finance these needs and some banks have chosen to do so with DAP – carefully designed loans with strong safeguards. Bank-offered DAP programs were well understood, well-liked by consumers who used them, and served an important role for consumers with short-term financial needs. These products had low default rates and offered protections that payday lending and other non-bank lending typically do not. We agree that safeguards should be put in place to protect consumers and hold bad actors accountable. The answer, however, is not overly prescriptive rules that force consumers to borrow more money than necessary or place arbitrary caps on consumers who responsibly use – and repay on time – these products.
As you know, similar guidance offered by the Office of the Comptroller of the Currency (OCC) was recently rescinded in a show of support of bank-offered DAP products. CBA has long held that the 2013 guidance has had an adverse impact on both consumers and banks as it severely limited the ability of banks to offer DAP, leaving most with little choice but to exit, or never enter, the short-term credit market. In the absence of DAP, millions of consumers have been pushed out of the traditional banking system and into more expensive and often less regulated alternatives such as non-depository payday loans, pawn brokers, title loans and other sources of emergency lending. Without reasonable alternatives, these consumers pay higher prices for short-term liquidity as well as increased delinquency, late payments, nonsufficient fund fees, and returned check fees. Like the OCC’s recent action, a move by the FDIC to eliminate the misguided policy would be the first step in allowing for a market in which depositories can offer safe and affordable products to consumers in need.
Additionally, unless significantly changed, the Bureau of Consumer Financial Protection’s (BCFP) finalized rule on small-dollar lending will only negate the OCC’s action and any similar action by the FDIC to open this important market. Under the BCFP’s current rule, lenders will be required, among other things, to determine whether consumers have the ability to repay by applying overly complicated underwriting requirements that will only act as a disincentive for depositories to offer small-dollar loans. While the BCFP did provide for some very specific exceptions that would allow for lenders to make loans that are not subject to the rule, these exceptions offer little in the way of practical application and provide little incentive for depositories to offer small-dollar products on an effective scale. Acting Director Mick Mulvaney has indicated the agency’s intention to revisit the rule for review and possible changes. We encourage all the banking agencies to work together to examine the use of small-dollar lending programs by banks, such as DAP, so Americans can receive short-term, emergency loans from their banks.
Thank you for your consideration and we look forward to our continued work with the FDIC on this important issue.
President and CEO
Consumer Bankers Association