The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued rules in November to keep banks from imitating predatory payday lenders; and so far the rules have shown promising results, according to the New York Times editorial board. The new rules have prompted several banks to discontinue “deposit advance” loans designed to trap people in debt. Until the Consumer Financial Protection Bureau (CFPB) issues its own rules, however, the newspaper believes consumers may not be protected from small loans that bear excessive costs.
Payday lenders draw customers with the promise of easily repaid, small loans, but most borrowers cannot pay them back on the agreed date. Users then borrow repeatedly, at rising interest rates. Banks' deposit advance loans work much the same way, but banks repay themselves out of electronic deposits to borrowers' accounts.
Under the new FDIC and OCC rules, banks must determine that a borrower can repay the debt and limit each borrower to one loan per monthly statement cycle. New loans also should not be issued until the previous one was paid off. The Pew Charitable Trusts’ Safe Small-Dollar Loans Research Project suggests that the CFPB release rules to limit monthly loan payments to 5 percent of the borrowers’ pretax income, spread out fees and interest over the life of the loan, and require clear fee disclosure. "Rules like these," according to the Times, "will give unsuspecting borrowers even more protection from being ambushed by debt."