CFSA, Lawmakers Respond to FDIC's Strong Stance on Payday Advance; Banks to Continue Offering Product, But Under Strict New Rules.

Business Editors

ALEXANDRIA, Va.--(BUSINESS WIRE)--July 2, 2003

The FDIC released its much anticipated guidance on the payday advance industry today, establishing strict criteria for state-chartered banks that offer the increasingly popular short-term credit option through third-party agents.

"There is no doubt that the guidance is tough on the industry," said David Davis, CFSA board member and executive vice president, Check N' Go. "But it is a much needed framework to ensure that banks offer the product in a safe and sound manner and with the appropriate consumer protections in place. New, substantive direction is more important than ever as we see increased consumer demand for short-term credit and more and more banks exploring ways to meet that demand."

A payday advance allows customers with a checking account and a regular income to receive a small, short-term advance on their next paycheck. Independent operators service the vast majority of payday advance customers through independent storefront locations. But in recent years, traditional banks have shown increased interest in payday advance. Banks typically offer the product through agent-assisted loan programs, similar to those used to provide residential mortgage or automobile loans.

The new guidances, available at http://www.fdic.gov/regulations/safety/payday/index.html, address safety and soundness issues, as well as warn bankers of legal and reputational risks associated with the product.

Lawmakers on both sides of the aisle commended the FDIC for taking a strong stance on payday advance while not going too far and restricting financial options for consumers.

"The FDIC has made it clear today that they will not tolerate irresponsible lending practices," said Congresswoman Ginny Brown-Waite (R-FL), House Financial Services Committee Member. "I commend Chairman Powell and his team for establishing strict guidelines that ensure that banks can only provide payday loans in a responsible, safe and sound manner."

"This guidance is an important step for the FDIC and I commend Chairman Powell for helping regulated institutions play a constructive role in expanding access to short-term, unsecured credit," said Senator Tim Johnson (D-SD) Ranking Member on Financial Institutions Subcommittee of the Senate Banking Committee.

CFSA leaders renewed their commitment today to continue to work with lawmakers and regulators to provide member companies with the guidance they need to engage in responsible and sound agent-assisted relationships. CFSA released its own agent-assisted loan program guidelines last year as a resource for both payday advance companies and banks. CFSA's guidelines go beyond the minimum requirements of the law to incorporate additional consumer protections and safety and soundness recommendations.

"The FDIC has provided a roadmap and established a clear set of rules," said Davis. "And now it is important that the industry, lawmakers, regulators and consumer groups work together to ensure that the FDIC's new standards are met, and that millions of working class Americans continue to have access to a variety of financial options."