Payday and advance deposit loans have been getting a lot of regulatory attention recently.
"The Consumer Financial Protection Bureau has begun examining payday loans, and the Federal Deposit Insurance Corporation has raised concerns over deposit advances, a similar product offered by a handful of banks," writes American Banker's Victoria Finkle.
The CFPB has the authority to stop what it deems "unfair, deceptive, or abusive acts and practices." And "these products are a UDAAP lightning rod simply because they're aimed at vulnerable and less sophisticated customers," says Jo Ann Barefoot, a co-chair at consultancy Treliant Risk Advisors.
Does that mean such products are doomed? Actually it could be a good thing for bank’s venturing into this territory, according to industry observers.
"The silver lining of enforcement is that it separates out what you can do in a much cleaner and clearer way.” says Anand Raman, a partner at Skadden, Arps, Slate, Meagher & Flom. "If regulatory expectations are more clearly articulated, and there's a well-defined, and responsible way to do it, then you will see more banks deciding, 'OK, we're going to put a toe in the water.'"
"There's definitely a possibility that whatever they do could give an advantage to bank services," says Barefoot.
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