Financial Regulators Issue Guidance for Offering Responsible Small-Dollar Loans
Last week, four federal financial regulatory agencies released guidance titled “Interagency Lending Principles for Offering Responsible Small-Dollar Loans,” encouraging credit unions, supervised banks, and savings associations to offer lending products to meet the short-term credit needs of financial institutions customers. The guidance was released by the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC).
The official guidance follows a joint statement issued in March by the four agencies and the CFPB encouraging such financial products.
“The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their ongoing needs for credit due to temporary cash flow imbalances, unexpected expenses, or income shortfalls, including during periods of economic stress, national emergencies, or disaster recoveries,” the statement of principles reads. “Well-designed small-dollar lending programs can result in successful repayment outcomes that facilitate a customer’s ability to demonstrate positive credit behavior and transition into additional financial products.”
According to a fact sheet issued in conjunction with the principles, many Americans use small-dollar loan products to meet their families’ credit needs. Nearly 20 percent of U.S. households reported varied month-to-month incomes and 37 percent of adults in 2019 would sell something or borrow money to pay a $400 expense.
Research also found that 1-in-5 U.S. adults disclosed using alternative financial services, like small-dollar loans, through non-traditional providers.
To ensure that such loans are offered responsibly, the guidance highlighted core lending principles, including safe banking, effective risk management, and underwriting loan products based on reasonable practices.
Patrick McHenry (R-N.C.), Ranking Member on the House Financial Services Committee, released a statement in response to the small-dollar lending guidance.
“Now more than ever, I’m glad to see regulators take action to ensure struggling families have access to every option to cover unexpected costs,” McHenry said. “Today’s move to streamline guidance for our financial institutions will provide greater flexibility to increase competition and choice in the small-dollar market.”