Regions Financial To End Controversial Consumer-Loan Product

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 will stop offering the product, a line of credit called Ready Advance, to new borrowers beginning Jan. 22. Customers who currently have an active credit line will be able to access future advances against their line of credit until the company completes a transition plan.

Regions is one of handful of banks that offer so-called deposit advance loans that 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.

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 before approving them for loans. Some banks have complained that requiring them to verify a borrower's repayment ability would make the loans to costly to continue offering.

The guidelines were issued by the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

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.

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 [e-mail] and Alan Zibel at [e-mail]

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