By Peter Rudegeair
Jan 17 (Reuters) - Wells Fargo & Co and U.S. Bancorp said on Friday they would stop offering customers a type of small, short-term loan that has come under regulatory scrutiny.
The so-called deposit advance products are similar to payday loans, in that they are both small, short-term loans and have been criticized by consumer activists for their high fees.
These loans are automatically repaid out of future direct deposits into checking accounts. A typical deposit advance loan can carry fees of $1.50 to $2 for every $20 borrowed.
In November, the Office of the Comptroller of the Currency, which regulates national banks, and the Federal Deposit Insurance Corp said they would make rules for deposit advance products more stringent.
The regulators said they planned to impose additional limits such as requiring a one-month cooling-off period between the time one loan is repaid and another can be extended.
“We are encouraging the banks we supervise to develop new and innovative programs to meet the small-dollar credit needs of their customers in ways that do not carry the risk of creating a cycle of high-cost debt,” Comptroller of the Currency Thomas Curry said in an email.
Wells Fargo, the fourth largest U.S. bank, said it will no longer make its direct deposit advance product available for customers who open accounts after Feb. 1, although existing customers can use the product until the middle of 2014.
U.S. Bancorp, a Minneapolis, Minnesota-based bank with $361 billion in assets, will cease offering its checking account advance product to new customers on Jan. 31 and existing customers on May 30.
Both banks said the decision to stop providing deposit advance loans was in response to the OCC and FDIC’s guidance. They did not disclose the revenue they receive from the product, but it is a small part of their overall business.
Fifth Third Bancorp, a Cincinnati, Ohio-based bank with $126 billion in assets, said late on Friday it would phase out its early access deposit advance service by the end of the year. On Wednesday, Regions Financial Corp, a Birmingham, Alabama-based bank with $117 billion in assets, said it would end its Ready Advance product by the end of 2014.