Banks and payday loan lenders - Banks, who traditionally offer a personal loan, now associate with payday loan lenders to offer a short term loan to their bad credit customers.

The bank sets credit criteria, approves and funds each loan, and the payday advance company assists in marketing and loan distribution.

Regulators Recognize Relationships:
While industry critics claim that federal policymakers are on the brink of banning these associate loan programs between banks and payday advance companies, it doesn't appear so, because:

Federal regulators recognize these relationships, and are releasing supervisory guidance to banks engaged in payday lending. The guidance stresses the need to protect consumers from unfair lending practices and ensure the safety and soundness of financial institutions, yet does not prohibit banks from offering payday advances or using associates to assist in marketing and servicing.

While the OCC has required some national banks to terminate relationships with payday lenders, many more state chartered banks continue offering loans nationally through sound and responsible relationships with payday lenders.

Despite recent bank exits, more financial institutions continue to enter the payday advance business and the number is expected to increase as does consumer demand.

Regulatory actions do not ban banks' authority to offer payday loans, nor question the legality of distribution through third-party agents:

Banks have long been authorized to conduct associate loan programs.

Associate programs with payday lenders are patterned after credit card issuers, auto loan and mortgages lenders, charging a bank's home state rate.

A state cannot prohibit out-of-state banks from offering payday loans through associate relationships, due to federal pre-emption laws.

The only federal court to specifically address the pre-emption issue between banks and payday lenders stated that the loans are governed by Section 85 of the National Bank Act and the lending arrangement lawful under federal law.

State Legislative Status
A majority of states have considered and enacted balanced, responsible legislation.

37 states and the District of Columbia regulate payday advances.

In the last four years, 8 states (AL, AK, DE, IN, MI, NH, OK, and VA) enacted new legislation that specifically authorized and regulated the service, 15 states reauthorized legislation.