Half a dozen banks this month have bowed to regulatory pressure and scrapped their deposit-advance programs, which mimicked payday loans and their high interest rates. While consumer advocates scored the bow-outs by banks as a win, they are worried about the alternative short-term credit options that some of the lenders have said they will develop to replace deposit-advances.
The National Consumer Law Center (NCLC), for one, wants to ensure that the new offerings are affordable. The organization has put together a set of recommendations that include restricting interest to a maximum of 36 percent on an annual basis; underwriting for ability to pay; amortizing installment payments instead of balloon payments; allowing at least 90 days for the borrower to repay the loan; and prohibiting check holding or required -- or coerced -- automated repayment.
"The foundation of every responsible loan, whether it is a mortgage or a $300 loan, is ensuring that the customer has the ability to repay the loan while meeting other expenses without reborrowing or entering into a cycle of debt," said NCLC managing attorney Lauren Saunders.