STATEMENT ON DEPOSIT ADVANCE PRODUCTS

The Board of Governors of the Federal Reserve System (Board) is issuing this statement to 

emphasize to state member banks the significant consumer risks associated with deposit advance 

products in light of the Consumer Financial Protection Bureau’s (CFPB) April 24, 2013 white 

paper entitled “Payday Loans and Deposit Advance Products: A White Paper of Initial Data 

Findings.”

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Background

A deposit advance product is a type of short-term, small-dollar credit product offered by 

depository institutions to consumers with a deposit account or reloadable prepaid card. The 

depository institution allows a customer to obtain an advance on expected future deposits. Such 

advances and any associated fees are generally required to be repaid when the next deposit 

occurs. 

The CFPB white paper sets forth the CFPB’s initial data findings regarding the costs and patterns 

of deposit advance product usage by consumers. In particular, the CFPB white paper raises 

concerns about the significant costs associated with sustained repeat usage of deposit advance 

products. On April 25, 2013, the CFPB issued a press release indicating that it sees significant 

consumer risks and that the CFPB expects to use its full authorities to provide protections to 

consumers once it completes further analysis of the short-term, high-cost loan market later this 

spring. 

Potential Risks Associated with Deposit Advance Products 

The Board encourages state member banks to respond to their customers’ small-dollar credit 

needs with products that meet this demand in a responsible manner. However, state member 

banks should take into consideration the significant risks associated with deposit advance 

products, including potential consumer harm and the potential for elevated compliance risk when 

designing such products. 

In designing and offering deposit advance products, state member banks must comply with all 

applicable federal laws and regulations, including but not limited to requirements under the Truth 

in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Truth in Savings Act 

(TISA), and the Equal Credit Opportunity Act (ECOA). In addition to these laws, institutions 

must act in accordance with Section 5 of the FTC Act, which prohibits unfair or deceptive acts 

and practices (UDAP), and Section 1036 of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, which prohibits unfair, deceptive, or abusive acts or practices. Depository 

institutions must also comply with state laws and regulations. 

The prohibition against UDAP applies broadly to every stage of the deposit advance product, 

including marketing, servicing, and collections. The Board expects institutions to analyze the 

legal risks of any deposit advance products before offering such products. The Board expects 

Federal Reserve examiners to thoroughly review any deposit advance products offered by 

supervised institutions for compliance with Section 5 of the FTC Act, as well as other applicable 

laws.

 

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http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf
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State member banks that rely upon outside vendors to offer deposit advance products remain 

responsible for compliance with applicable laws and regulations. Inadequate management or 

oversight of third-party vendors by depository institutions presents additional consumer and 

compliance risks. In addition, fee sharing or similar arrangements that create an incentive for 

third party vendors to increase product usage create particular risk in connection with deposit 

advance products given that they may lead vendors to encourage inappropriate sustained usage 

of such products by consumers. Accordingly, the Board expects institutions to develop 

procedures to closely monitor vendor practices and outcomes. State member banks should 

mitigate and manage such risks, consistent with applicable regulations and guidance, in 

connection with the design and marketing of any deposit advance products that they might offer.