A little-known corner in the lending industry of the US caused a new regulatory struggle. Consumer advocates are claiming for strict restrictions for payday-style loans provided by banks, while the lenders are defending their ability to offer this service.

The so-called direct deposit advance loans offered by banks are much similar to traditional payday loans which supply borrowers with emergency cash. Debate over these paycheck loans occurred after the Office of the Comptroller of the Currency proposed particular guidelines which need to be followed by banks making this form of service.

The New Guidelines

The OCC, that regulates the national banks, warned banks not to enroll customers automatically and stated that they should clearly disclose the fees. Besides, according to the guidelines, lenders have to limit repeat loans.

Banks consider such regulation unnecessary, but consumer advocates insist that these guidelines must be stricter. In addition, consumer groups have started to urge the Consumer Financial Protection Bureau to rein in such banks’ practices.

Banks See No Need In Regulation

In spite of the claims provided by consumer advocates, banks assure that they are acting responsibly. The lenders offer this kind of cash in advance only to existing customers possessing direct-deposit accounts, limit the amount available for borrowing and warn about the fees they charge. Consumers can basically request the banks’ cash advance through the Internet or by phone and get an immediate line of credit, typically up to $500. Once the borrower’s next paycheck is deposited, the bank deducts the loan balance and the fees repaying itself.

Now only few banks, like Wells Fargo and US Bank, are offering the direct deposit advance loans, but the interest in providing such service was signaled by more banks.