WASHINGTON, April 25 U.S. financial regulators
on Thursday warned banks to boost underwriting standards and
oversight of short-term, small-dollar loans that could lead some
borrowers to become buried in debt.
Some banks, including Wells Fargo and US Bancorp
, offer products known as deposit advances, which are
small loans that are repaid out of direct deposits into the
customer's account. Such loans are typically used by
lower-income borrowers who live paycheck to paycheck.
Consumer advocates say banks extend such loans, which
resemble traditional payday loans in that they are repaid
quickly and typically carry high fees, without adequately
considering whether consumers can afford to repay them.
That can force some borrowers to rack up short-term loans,
consumer groups and regulators say.
The Office of the Comptroller of the Currency said in new
guidance released on Wednesday that banks could suffer
reputation risks or safety and soundness concerns if their
customers frequently misuse deposit advance products.
U.S. regulators have been keeping an eye on short-term
credit products for some time. The Consumer Financial Protection
Bureau said in a report on Wednesday that payday loans and
deposit advances can trap borrowers in a cycle of debt.
The bureau warned it was considering new rules for such
The OCC, which oversees national banks, said in its new
guidance that banks it supervises that offer deposit advances
need to ramp up underwriting standards for short-term loans and
improve oversight of the borrowers who use them.
It said it would look at deposit advance programs during
"The OCC continues to encourage banks to respond to
customers' small-dollar credit needs," the agency said.
"The OCC is proposing guidance to ensure that any bank
offering these products does so in a safe and sound manner and
does not engage in practices that would increase credit,
compliance, legal, and reputation risks to the institution."
The Federal Deposit Insurance Corp put out similar guidance
on Thursday for banks it regulates.
Banks must do more to make sure borrowers can repay loans,
enforce "cooling-off periods" that block consumers from taking
out a loan right after paying off an old one, and monitor
customers for repeated use of deposit advances, regulators said.