Wells Pledges Decision on Deposit Advances Soon

Within the next few months, Wells Fargo (WFC) expects to decide whether to continue offering a controversial consumer loan product that has come into regulators' crosshairs, Chief Financial Officer Timothy Sloan said Tuesday.

The company's Direct Deposit Advance bears a strong resemblance to a payday loan. Customers get charged $1.50 for every $20 they borrow, with full repayment usually due within no more than 35 days.

In late November, federal banking regulators placed stringent new restrictions on such loan products — for example, requiring banks to evaluate each borrower's ability to repay without rolling the loan over. That requirement that would likely disqualify many of today's customers, industry observers have said.

Only six banking companies currently offer so-called deposit advances, and just four of them — Wells Fargo, U.S. Bancorp (USB), BOK Financial (BOKF), and Guaranty Bank of Wisconsin — are subject to the new guidance from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

Over the last several weeks, banks that are affected have been talking to their regulators about how they can get into compliance with the new guidance. The banks must either discontinue the loans entirely, or give them a major overhaul that complies with the new edict from Washington.

In an interview Tuesday, Wells Fargo's Sloan declined to commit to a specific timetable for action. But he said the company will likely make a decision in the "next few weeks" or the "next few months."

In a letter to regulators last year, Wells stated that it would "be forced to discontinue" the Direct Deposit Advance product if proposed regulatory guidance took effect. In the end, the final guidance was nearly identical to the earlier proposed version.

But Sloan said Tuesday that Wells Fargo has yet to reach a final decision about whether it will stop offering deposit advances. "We're studying how to do that, if we decide to do it," he said.

One of the issues that Wells Fargo is working on, Sloan said, is how to deal with existing customers in the event that the product is discontinued.

Sloan's comments, although brief, were the most expansive remarks that official at any of the affected banks have made since the guidance was finalized. Other banks have released brief written statements saying they are evaluating the new guidance.

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Consumer banking Law and regulation
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