FDIC Asks Banks for Input on Small-Dollar Loans

Inside Subprime: Nov 26, 2018

By Grace Austin

The Federal Deposit Insurance Corporation is asking for feedback from banks on how to support small-dollar lending, signaling a potential shift in policies toward short-term, small-dollar loans.

That request came in mid-November from the federal agency. The open period to submit comments will last 60 days.

The FDIC is asking banks about the demand for small-dollar loans, the benefits and risks of offering small-dollar loans, and potential challenges — like if there are legal or regulatory challenges to having these types of loans available to consumers and what could keep consumers from applying for them. The FDIC also wants to know if certain product features would make the loans better for consumers and banks, and the role of technology in such loans.

Although the FDIC named a number of questions it’s looking for feedback on, it’s still a vague request for comments in some ways, since the agency didn’t specify such key guidelines as what quantifies a small loan.

The FDIC’s move follows the Office of the Comptroller of Currency’s decision in May 2018 to ease limits on small-dollar lending. That’s a shift from five years ago — in 2013, the OCC and the FDIC restricted short-term, small-dollar loans.

But as the American Banker said recently, many banks are hesitant about introducing or re-introducing those types of loans before governmental agencies have OK’d them.

In a statement, FDIC Chairperson Jelena McWilliams said that, while it would be great if American consumers didn’t have to rely on such loans, “studies have shown that unfortunately that is not the reality for many Americans. Consumers benefit when small-dollar credit products are available from banks.”

The FDIC said that its own research, released in October 2018, shows “20 percent of U.S. households reported that their income varied ‘somewhat’ or ‘a lot’ from month-to-month.”

One of the key words the FDIC used in its statements on small-dollar loans is “responsible.” While research shows 40 percent of Americans don’t have enough savings for a $400 expense, that means there aren’t a lot of options for them on the market right now. And products like payday loans and title loans with exorbitantly high interest rates become one of the few recourses, leaving consumers trapped in a cycle of debt.

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