OCC releases guidance on deposit advance products
Last week the Office of the Comptroller of the Currency (OCC) published final guidance for national banks and savings associations. The regulation addresses risks and expectations associated with deposit advance products.
“The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said. “However, deposit advance products share a number of characteristics with traditional payday loans, including high fees, short repayment periods, and inadequate attention to the ability to repay. As such, these products can trap customers in a cycle of high-cost debt that they are unable to repay. As a result, they pose significant safety and soundness and consumer protection risks. Banks must understand and manage those risks, and this guidance clarifies our expectations for doing so.”
A deposit advance product is a small, short-term loan given to clients who have repeated direct deposits. The customer’s next deposit is to be used to pay off the balance of the deposit advance loan. The guidance applies to any OCC-supervised bank offering deposit advance products.
Examiners will assess many factors of credit quality, including underwriting and credit administration policies and practices; reliance on fee income; compliance with applicable federal consumer protection statutes; management oversight; third-party relationships; adequacy of capital levels and the allowance for loan and lease losses (ALLL).
Examiners will assess whether the ALLL is adequate to absorb estimated credit losses within the deposit advance loan portfolio. Examiners will also determine whether a bank engaged in deposit advance lending has methodologies and analyses in place that demonstrate and document that the level of the ALLL is appropriate.
For more in-depth information on ALLL calculations, download the e-Book: The Complete Guide to the ALLL.