While the CFPB's new payday loan rule turned a lot of heads yesterday, it was by and large an expected piece of regulation.
Much less expected, on the other hand, was the announcement out the Office of the Comptroller of Currency yesterday that it was rescinding Obama-era guidance that made it more difficult for banks to offer a payday-like product called deposit advance.
Acting Comptroller Keith Noreika said the change in policy on the deposit advance rule was necessitated by concerns that it would conflict with the CFPB's payday rule (small bank small dollar lending is an area of exemption in the new payday lending rules, anyway.)
The OCC noted its choice was to avoid duplication with the CFPB’s efforts.
“Today, I approved rescission of the OCC’s guidance regarding deposit advance products, effective immediately,” acting Comptroller of the Currency Keith Noreika said in a press release. The CFPB’s payday rule, he added, “necessitates revisiting the OCC guidance.”
As it turned out, there was a carve-out in the law for small banks and credit unions that make 2,500 or fewer short-term or balloon payment loans per year and derive less than 10 percent of their revenue from such loans.
“We have no intention of disrupting lending by community banks and credit unions. They have found effective ways to make small-dollar loans that consumers are able to pay without high rates of failures,” Cordray said.
Under new regulations, payday lenders are pushed to restructure into being installment lenders, while small banks are freed. Larger state-chartered institutions remain subject to Federal Deposit Insurance Corp. rules that put limitations on such loans.
The OCC and FDIC acted in concert earlier to rein in deposit advance products, but only the OCC rescinded its guidance on Thursday. It remains up in the air what the FDIC plans to do. The move to act in tandem is a bit of a surprise given the tension between the heads of the OCC and CFPB — Noreika and Cordray.
The comptroller has sharply criticized the CFPB's arbitration clauses ban, on the argument it hurts banks and consumers.
On Thursday, CFPB officials said they were not aware the OCC was taking action regarding deposit advance products.
“We got no heads up on that," Brian Shearer, an attorney with the CFPB, told reporters on a conference call.