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OCC Pulls Back on Deposit-Card Ruling

Adam Rust's picture

Posted July 11, 2011

The Office of the Comptroller of the Currency has postponed the due date for comments on it recent guidance about deposit-related credit products.

The action is notable because it pushes the rule-making process off until after the start of the new Consumer Financial Protection Bureau. The CFPB has said that it intends to play

an active role in this arena. The OCC's was sprinting to conclude the process. A 30-day comment period is unusually brief. It isn't unusual for comment periods to last between 60 and 90 days.

The OCC announced the guidance on June 8th and put a final date of July 8th. Given that the period included the long holiday weekend, it was very fast.

The OCC's fast comment would seem to have marked an initial skirmish between the national bank regulator against the upstart CFPB. If the OCC is able to claim supervision and rulemaking authority over these products, when offered at a national bank, then they may be able to use their pre-emption powers to overrule state consumer finance laws that do not allow loans at these prices.

Pre-emption would bring dramatic change to the availability of these advance products. To date, the big banks have shied away from pushing to make these loans in states where their fee structure, as calculated through an APR, is in violation of usury laws.

By holding back, no precedent has been set. A pre-emptive OCC rule would pave the way for the national banks to push these products into states where they currently violate standards against usury.

Only OCC-regulated banks offer these advances. Wells Fargo has a "direct deposit advance," Fifth Third offers "Early Access," and US Bank provides a "checking account advance."

In general, these are short-term advances that come with fees. The fees are either a relative value compared to an overdraft, or high-cost loans - depending upon your point of view.

The mechanics go like this: An account holder fills out an online form for the right to have the advance. If he or she takes an advance, the fee is fixed and is a function of the loan size. Take out $10 and it will cost you $1. At Wells, the price is a bit less: $1.50 for every $20.

The loan term is only as long as the time until the customer's next direct deposit or for 35 days, whichever is sooner.

The APR on such a loan product comes to between 78 and 521 percent, depending upon the actual time that the borrower keeps the advance.