April 23 (Bloomberg) -- The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency plan to issue guidelines to banks this week aimed at curbing offerings of short-term loans, according two people briefed on the plans.
The two agencies have developed guidance that bank examiners will apply in supervising banks, according the people, who spoke about the plan on the condition of anonymity because it’s not public yet.
The regulators will express significant concerns about the misuse of deposit-advance products and promise close scrutiny of any bank offering the loans or proposing to do so, one person said. The guidance will resemble rules from the early 2000s that eventually forced banks to stop partnering with payday lenders to evade state regulations.
The step could curb revenue at banks that started to offer such loans as part of their search to replace money lost to regulatory crackdowns after the financial crisis. Banks including Wells Fargo & Co., Regions Financial Corp., U.S. Bancorp and Fifth Third Bancorp have offered some type of deposit-advance loan.
The guidance concerns loans that resemble so-called payday loans that are offered by storefront lenders and are secured by a check post-dated to a borrower’s next payday. Lenders do not typically gauge a borrower’s creditworthiness, and loans are expected to be repaid in full with one balloon payment that covers interest as well, usually after two weeks.
Banks sometimes call their loans deposit advance products, and debit repayment directly from a checking account.
The new FDIC and OCC rules will require banks to measure a borrower’s ability to repay the loans. They will have to disclose an annual percentage rate for the loan, wait a full billing cycle between loans and ensure that a customer pays off any loan before getting another.
OCC spokesman Robert Garsson and FDIC spokesman Andrew Gray declined to comment.
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