The government is imposing tougher restrictions on banks that offer short-term, high-interest loans that have been blamed for trapping some Americans in a cycle of debt, the Washington Post reported today. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued identical guidance to limit the risks of loans tied to consumers’ paychecks, government benefits or other income directly deposited into their bank accounts. Critics say that these products carry the same abusive high interest rates and balloon payments as the payday loans offered by storefront and online operators. But industry groups contend that placing strict constraints on banks will only push people with limited access to credit into the arms of less-regulated vendors. “The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said. “However, deposit advance products . . . pose significant safety and soundness and consumer protection risks.” Curry said that the guidance is meant to clarify the agency’s expectations for banks to understand and manage those risks. Neither the OCC nor the FDIC will bar banks from deposit-advance loans, but their policies could radically alter the operations of the handful of banks that offer the product. At least 15 states have already banned the service, while several others have imposed strict laws to limit the interest rates and the number of loans that can be made.
