The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have carried out their threats in their proposed guidance to kill deposit advance loans. On November 21, 2013, the two agencies issued final guidance that may make it impossible for banks they supervise to continue offering these products on a large-scale basis, if at all. As before, the Federal Reserve Board conspicuously has not joined in the OCC and FDIC guidance.

The OCC and FDIC report that they received more than 100 official comments on their proposed guidance (including two separate comment letters we submitted). However, there is no evidence of any serious reconsideration of the guidance. Rather, the OCC and FDIC issued final guidance substantially as proposed. Thus, as previously reported, the guidance would include the following limitations:

• For the bank to be able to evaluate a customer’s deposit advance eligibility, the customer must have had a deposit account with the bank for at least six months.
• Customers with any delinquent or adversely classified credits should be ineligible.
• The bank should analyze the customer’s financial capability, giving consideration to the customer’s ability to repay a loan without needing to borrow repeatedly from any source, including re-borrowing, to meet necessary expenses.
• Each deposit advance loan should be repaid in full before a subsequent loan is made, banks should not offer more than one loan per monthly statement cycle, and a cooling-off period of at least one monthly statement after repayment of a loan should be completed before another loan is made. We read these requirements to effectively impose a limit of six deposit advances per year.
• A customer’s deposit advance credit limit should not be increased without a full underwriting assessment and any increase should not be automatic but should be initiated by a customer’s request.
• The bank should reevaluate the customer’s eligibility and capacity for the product no less often than every six months and identify risk that could negatively affect the customer’s eligibility, such as repeated overdrafts.

We expect that the foregoing limitations, especially the limits on the frequency of deposit advances and the underwriting requirements (to say nothing of the hostile regulatory attitude evidenced by the guidance), may make it impractical or undesirable for banks subject to the guidance to provide or continue to provide deposit advance services.

Apparently, the OCC and FDIC believe that a cost/benefit analysis of the impact of deposit advances on consumers is unnecessary. Rather, the OCC and FDIC assume that repeated use of deposit advances injures consumers and then effectively rule that the perception of consumer injury is enough to effectively ban the product. Although the guidance will have the effective force of a formal rule, the FDIC and OCC consciously decided not to follow the rule-making procedures of the Administrative Procedures Act. This decision could expose the guidance to legal attack, assuming a bank or a trade group would have the temerity to initiate litigation against the OCC and FDIC.

While we remain concerned about how the Consumer Financial Protection Bureau will ultimately approach the issues raised by the OCC and FDIC guidance, to its credit the CFPB has indicated that it will engage in formal evidence-based rule making.