Nelson, Warren Statement on FDIC, OCC Final Guidelines on Deposit Advances
WASHINGTON, DC – U.S. Senate Special Committee on Aging Chairman Bill Nelson (D-FL) and Sen. Elizabeth Warren (D-MA) issued the following statement today after the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) announced final guidelines today that impose consumer safeguards on payday loan-like deposit advances.
“This is welcome news for consumers,” said the two lawmakers. “Banks should be more responsible when offering products that could trap people in a cycle of debt.”
Specifically, the final guidance, among other things, directs banks to examine customers' income and expenses to make sure that they can actually afford to pay off the loan and associated charges and includes a cooling-off period for borrowers, who would need to wait at least a month between paying off one deposit-advance loan and taking out another.
Deposit advances are a form of payday loan offered by a small number of large banks to existing account holders who have recurring electronic deposits. A deposit advance typically does not have a predetermined repayment date; instead, a payment is automatically taken out of a borrower’s next electronic deposit, regardless of its source. Since many seniors often secure such advances through their pending monthly Social Security and Supplemental Security Income (SSI) benefits, consumer advocates contend that fees and overdrafts associated with the products erode seniors' benefits and trap them in a cycle of debt. A recent report from the Center for Responsible Lending (CRL) found that Social Security recipients account for more than a fourth of all deposit advance customers.
In May, Nelson and Warren wrote letters to the FDIC and OCC endorsing the guidelines.
“Social Security was created to provide seniors with financial support to help them cover basic living expenses, not for banks seeking new sources of revenue by exploiting retirees with limited means,” the senators wrote.
Today’s announcement comes in the wake of a hearing the aging committee held in July to examine the impact payday and other short-term high-cost lending products were having on seniors. During the hearing, 70-year old Annette Smith of Rocklin, California, shared with lawmakers how she got stuck in a cycle of debt after using her only income – Social Security benefits – to secure a $500 deposit advance to repair her vehicle. She ended up paying about $3,000 in fees through 63 payments over a five-year period.
“I never considered going to one of those payday loan stores because I knew they had a reputation for charging really high interest rates and those are things I could not afford. In fact, I thought that since banks were required to follow certain laws, they could not do what those payday loan people were doing,” Smith told the committee.
To view the FDIC, OCC guidlines click here