CFPB Report Points to Payday Lending Clampdown

NEW YORK (TheStreet) -- Now that banks are pretty much bailing out of the payday lending business, federal regulators are getting ready to set new rules for non-bank payday lenders.

The Federal Deposit Insurance Corp. and the Office of the Comptroller of the currency set new rules last year for payday loans -- called "deposit advance products" by banks and bank regulators -- last year, and the largest banks in the business, including Wells Fargo (WFC), Fifth Third Bancorp (FITB) of Cincinnati and Regions Financial (RF) of Birmingham, Ala., have either exited the business or announced plans to do so.

Banks of course have an advantage in the business over non-bank payday lenders because the bank's customers have deposit accounts, and the bank can quickly review a customer's history of direct deposits when making a loan decision. But the banks have shied away from the business because of the new rules. These include a "cooling off period," limiting customers to one payday loan a month, as well as a requirement for the bank to assess a deposit advance loan customer's eligibility for the loans every six months, including a detailed analysis of checking-account inflows and outflows, factoring in overdrafts and drafts from savings account.

OK, so that takes care of the banks. They are pretty much out of the payday lending business, unless they want to set up elaborate underwriting systems for these customers.

The Consumer Financial Protection Bureau -- created when the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 -- has said it would address payday lending later this year, and new rules will likely require much more thorough and clear disclosure of just how much payday loans can cost consumers. And the CFPB's rules will cover all payday lenders, including the ones that aren't banks.

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