MetaBank, based in Storm Lake, Iowa, will no longer offer iAdvance loans on prepaid debit cards after federal regulators determined the product constituted "unfair or deceptive acts or practices."
The bank disclosed the action in a filing last week with the Securities and Exchange Commission.
The National Consumer Law Center said the Office of Thrift Supervision suspended what amounted to 650 percent payday loans.
"The OTS should be applauded for shutting down this abusive product. We hope that other regulators will follow suit to stop triple digit lending that is designed to be unaffordable and is based on the bank's ability to seize the consumer's benefits or wages and not the consumer's ability to pay," said Lauren Saunders, Managing Attorney of the National Consumer Law Center's DC office.
The NCLC said the iAdvance line of credit was available to consumers who had their public benefits, unemployment insurance or wages directly deposited to a prepaid card. The advances cost $2.50 per $20 borrowed and were repaid automatically with the next direct deposit, whether one or 30 days later. The minimum APR was 120 percent, but if the loan were taken out a week or less before payday, the loans would cost at least 650 percent APR, according to the consumer group.
NCLC says Wells Fargo Bank, U.S. Bank, Fifth Third Bank, and others have similar direct deposit account advances with similar pricing. Fiserv has also been pushing a similar product to banks as a replacement for overdraft fee income, the group said.
"Now is the time to stop this new form of predatory bank lending, before it takes off," said Saunders. "The bank regulators should not wait for the new Consumer Financial Protection Bureau and should take action against similarly unfair or deceptive practices by other banks before those practices spread or become entrenched."Regulators told MetaBank it must seek written approval before it goes for any third party relationship agreements for deposit or credit products. That also means for the 2011 tax season, the bank will also not be able to originate any refund anticipation loans.