CFPB Grants Bank of America Protection for Small Dollar Loans
The Consumer Financial Protection Bureau (CFPB) recently sent Bank of America a “no-action letter” clearing the bank to offer its previously announced small-dollar loan program without the threat of enforcement or supervisory action looming over it.
“The Bureau approved the [no-action letter] Template to further competition in the small-dollar lending space, which fosters access to credit while including important protections for consumers who seek small-dollar loan products,” said the CFPB in a press release announcing its decision.
In October, Bank of America announced plans to release a short-term, small-dollar loan product beginning in January 2021 that lets checking account customers borrow up to $500 for a $5 flat fee. Customers must repay the loan in three equal monthly installments over 90 days. The plan came after regulators encouraged banks to take up small dollar lending in May to help consumers affected by the COVID-19 pandemic.
The CFPB also approved a template in May that banks could use to seek a no-action letter for offering loans or credit lines for a maximum of $2,500. The template gives guidelines that the CFPB has approved and expedites the approval process for banks seeking no-action letters. Bank of America’s application was built on a template requested by the Bank Policy Institute, a Washington trade group.
Additionally, the CFPB stated that it submitted a Paperwork Reduction Act notice to the Office of the Federal Register pertaining to the testing of consumer disclosures. The Bureau has been trying since July to identify information that can be disclosed to consumers to help them make informed choices during the small-dollar lending process.
“The testing of different consumer disclosures supports the Bureau’s commitment to ensuring that consumers have the information they need to understand the small dollar products available to them so they can make the choices that are best for them and their personal circumstances,” said the CFPB.