By Andrew R. Johnson and Alan Zibel
Regions Financial Corp. said Wednesday it will stop offering a
short-term consumer-loan product to new customers next week and
will discontinue the product, which had attracted regulatory
scrutiny, entirely by the end of the year.
The Birmingham, Ala.-based firm is the first large bank to
announce plans to terminate so-called deposit-advance loans after
banking regulators last year called for lenders to analyze
customers' ability to repay the loans. Some banks complained that
doing so would make the loans too costly to offer.
Regions said it would stop offering its product, a line of
credit called Ready Advance, to new borrowers beginning Jan. 22.
Qualifying customers who currently have an active credit line will
be able to access future advances until the company completes a
transition plan.
Regions is one of handful of banks that offer the loans, which
allow consumers to borrow money against future deposits into their
checking accounts. The banks that offer them, which also include
Wells Fargo & Co., U.S. Bancorp and Fifth Third Bancorp, pitch
them as alternatives to payday loans, which are short-term loans
offered by nonbank lenders that typically last a couple of
weeks.
But consumer advocates have complained that the bank-issued
loans, like payday loans, carry exorbitant fees and short repayment
terms that can cause borrowers to fall into a cycle of debt.
In its product disclosures, Regions says Ready Advance loans can
carry annual rates of 120% or more when including fees charged to
customers.
Federal regulators in November issued guidelines for banks that
provide the loans, saying lenders need to assess a borrower's
ability to repay the loans.
The guidelines were issued by the Federal Deposit Insurance
Corp. and Office of the Comptroller of the Currency.
Wells Fargo, the largest bank to offer deposit-advance loans,
warned in May that requiring the bank to verify a consumer's
ability to repay would force the bank to discontinue such loans,
"leaving many customers only more expensive alternatives."
U.S. Bancorp last year said the regulators' proposal would
"limit the bank's ability to provide deposit-advance products to
most customers." Representatives of the Minneapolis-based bank did
not immediately respond to requests for comment Wednesday.
The guidance didn't apply to Regions or Fifth Third because they
are regulated by the Federal Reserve, which didn't join the OCC and
FDIC. The Fed said in April that it was concerned about the risk of
such loans but deferred judgment to the Consumer Financial
Protection Bureau, which has been studying ways to regulate such
loans.
Fifth Third doesn't currently plan to end its product, called
Early Access, a spokesman for the Cincinnati-based bank said
Wednesday.
A spokeswoman for Regions said the bank's decision was "based on
a number of industry factors that have emerged since we introduced
the product in 2011." She declined to discuss specific details.
Regions also announced it was offering new consumer loan
products, including personal loans that are secured by a customer's
savings account. The loans come in amounts as low as $250.
Write to Andrew R. Johnson at andrewr.johnson@wsj.com and Alan
Zibel at alan.zibel@wsj.com
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