Wells Fargo (WFC), U.S. Bancorp (USB), Fifth Third Bancorp (FITB) and Guaranty Bank of Wisconsin all pulled the plug Friday on a controversial lending product that competes with payday loans.
Banks are facing pressure from regulators to exit the so-called deposit advance market. A total of four institutions have done so this week, including Regions Financial (RF), which announced its plans Wednesday.
Wells Fargo stated in a news release that new consumer checking accounts opened Feb. 1 or later will not be eligible to take out deposit advances, and the product's existing customers will be able to access the product only until mid-year.
"Wells Fargo is finalizing a transition plan and will communicate the details to existing customers well in advance of the discontinuation," the company stated.
San Francisco-based Wells also said that the product's discontinuation is not expected to have a material impact on the company's earnings.
U.S. Bank said that it will stop offering its deposit advance product to new checking account customers on Jan. 31. Existing customers will lose access to the product on May 30; anyone who has an outstanding balance at that time will be offered extended repayment terms, U.S. Bank stated.
"We recognize our customers' need for short-term, small-dollar credit," Kent Stone, vice chairman of consumer banking and support at U.S. Bank, said in a news release. "We are committed to finding new solutions that meet the needs of all of our customers and fit within the current regulatory expectations."
Fifth Third announced that it will stop enrolling customers in its deposit advance product after Jan. 31. Existing customers will be phased out by the end of 2014.
Cincinnati-based Fifth Third said that it is working to develop new small-dollar loan options for consumers. The company plans to roll out its offering by the end of this year or early next year.
Fifth Third also stated that its own research has shown that its customers believe deposit advances provide an important service. "A primary objective is to serve customers within the traditional banking system, rather than pushing them into less-regulated providers outside the banking system, where services are more costly," Fifth Third stated.
The $1.1 billion-asset Guaranty Bank in Milwaukee said Friday that it will also stop enrolling customers in the deposit advance programs Jan. 31 and that it will discontinue the loans completely by midyear.
The deposit advance product, which has drawn sharp criticism from consumer advocates, bears a number of similarities to payday loans. Both products generally carry triple-digit annual percentage rates, and they typically require full repayment within a month or so.
Often bank customers will agree to repay the deposit advance automatically from their checking account after they receive their next paycheck, similar to how payday loans are secured by a post-dated check.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued regulatory guidance in late November requiring banks that offer deposit to underwrite the loans based on the borrower's ability to repay the loan without rolling it over. That guidance was widely seen as the product's death knell.
Comptroller Thomas Curry said in an email Friday: "We are encouraging the banks we supervise to develop new and innovative programs to meet the small-dollar credit needs of their customers in ways that do not carry the risk of creating a cycle of high-cost debt."
The $26.9 billion-asset BOK Financial (BOKF) in Tulsa, Okla., is now the only bank still offering deposit advances. "We are in the process of concluding our analysis and will be prepared to share our future plans for the product in the next few weeks," spokeswoman Andrea Myers said in an email late Friday.