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Wednesday, June 27, 2012

ABA Urges Interagency Regulations for DDA Services

Banks offering direct deposit advance services to meet their customers small-dollar, short-term unsecured credit needs are working intensely to ensure that such products’ operational, credit, compliance, and reputational risks are well understood and managed, ABA President and CEO Frank Keating said yesterday in a letter to FDIC Acting Chairman Martin Gruenberg.
Although consumer advocates characterize DDA services as ‘payday lending,’ such pejorative labeling fails to recognize important distinctions between traditional nonbank products and the streamlined underwriting, installment-option deposit-based lending that banks are developing to compete against less consumer-friendly nonbank alternatives.
Keating noted that Gruenberg’s recent letter to the Americans for Financial Reform presumes without industry rebuttal or input that “banks continue to engage in high-cost payday lending activities and such activities appear to be on the rise.”
I am concerned that this prejudgment may signal the FDIC’s intent to act independently to regulate DDA services, even though the Bureau of Consumer Financial Protection is actively investigating markets for short-term consumer credit products.

As ABA has stated on many occasions, the goal of consistent regulatory treatment of similar products … demands common regulatory standards and consistent supervisory expectations across charters.
Read the full letter.

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