deposit advance products

Consumer Financial Protection Bureau Proposes Rule to End Payday Debt Traps

On June 2, 2016, the Consumer Financial Protection Board (the “CFPB”) announced a proposed rule that would substantially change the rules governing “payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.”  The CFPB also indicated it would investigate whether additional products and protections should be covered. Press Release.

The stated purpose of the rulemaking is to protect consumers living paycheck to paycheck from the so-called “debt spiral” of serial borrowing and multiple loan origination and overdraft fees occasioned by chronic liquidity needs.  Given that the proposed rule spans 1,334 densely filled pages, it will take some time to digest the broad requirements and potential impact.  Thus far, however, opinions on whether the proposed rulemaking is likely to achieve its stated goals and the impact it may have on particular businesses or borrowers seem to depend on perspective.  For some, the proposed rule is an example of overreaching by the CFPB that threatens their business and really “miss[es] the mark,” as Richard Hunt, President and CEO of the Consumer Bankers Association, noted last week.  For others, the rulemaking would appear to have a marginal impact, if any.  And some FinTech companies view the proposed rule as an opportunity for market disruption and new entrants.

For a summary of the proposed rules and their potential impact on Current Providers of Short-Term Consumer Loans, Established Banking Institutions and New Market Entrants, and Consumers, please take a look at our analysis, The New CFPB Payday Lending Rules:  An Early Analysis.

FDIC Guidance on Deposit Advance Products

On November 21, the FDIC issued final supervisory guidance to FDIC-supervised financial institutions with respect to the risks imposed by certain deposit advance products.  The FDIC encourages banks to: (i) continue to offer these products, consistent with safety and soundness and other supervisory considerations and (ii) develop new or innovative programs to effectively meet the need for small-dollar credit.  FDIC ReleaseFinal Guidance.