On March 1, 2005, the FDIC announced revisions to its guidelines to banks engaged in payday lending. The guidelines seek to "ensure that this high-cost, short-term credit product is not provided repeatedly to customers with longer-term credit needs." Thus, the FDIC has taken the important step of recognizing that payday lending can lead to a debt-trap.
The guidelines call on banks to develop procedures to ensure that they do not make payday loans to customers who have had payday loans outstanding from any lender for a total of more than three months in the previous 12 months. Assuming a typical payday loan of two weeks, the FDIC guidelines would permit six transactions, but then would require the bank to offer to or refer the borrower to a longer-term credit product.
The other provisions of the guidelines remain unchanged.
The Revised Examination Guidance is a positive step by the FDIC, however, the full impact of the Guidance is uncertain.