Bankers Urge CFPB to Preserve Accommodation Loans

With the recent news that the Consumer Financial Protection Bureau (CFPB) would reconsider its rule on small dollar credit products, the American Bankers Association wrote to Interim CFPB Director Mick Mulvaney requesting the consumer watchdog preserve banks’ ability to issue “accommodation loans.”

Accommodation loans are short-term forms of credit that banks occasionally issue to deposit holders to cover small emergencies or needs. The CFPB’s Small Dollar Rule provided for an exemption from certain requirements to banks and credit unions so long as those institutions made the loans in low volumes.

Federal regulators have loosened rules and guidance on short term credit products for banks in recent months. Moments after the CFPB announced the Small Dollar Rule, the Office of the Comptroller of the Currency (OCC) rescinded guidance that had effectively prohibited banks from issuing deposit advance products (a short term form of credit that mimics payday loans).

With the future of the Small Dollar Rule now in limbo, mainstream banks have an increased opportunity to provide short term credit products and compete with alternative financial service providers for the massive underserved banking community.