The FDIC has updated its 2005 guidance on payday lending by banks to emphasize that the guidance does not apply to banks providing bank products and services, such as deposit accounts and extension of credit, to payday lenders. The guidance applies to payday loan-style products made directly to consumers by banks. The FDIC indicates that financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of business customers or individual customers operating in compliance with applicable state and federal laws.
The revised guidance states that institutions should ensure that payday loans are not provided to customers who have had payday loans outstanding from any lender for a total of three months in the previous 12-month period. When a customer has used payday loans more than three months in the past 12 months, institutions should offer the customer, or refer the customer to, an alternative longer-term credit product that more appropriately suits the customer’s needs. In any event, whether or not an institution is able to provide a customer alternative credit products, an extension of a payday loan is not appropriate under such circumstances.
FDIC-supervised institutions engaged in payday lending have been instructed to submit plans detailing how they will address the revised guidance. In addition, the FDIC anticipates using a mystery shopper program in conjunction with its examination process of institutions involved in payday lending.