Five Federal Agencies Encourage Financial Institutions to Offer Responsible Small Dollar Loans to Consumers and Small Businesses Affected by COVID-19

In a joint statement issued earlier today, the Federal Reserve Board of Governors, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) encouraged financial institutions to offer responsible small dollar loans to consumers and small businesses.

“The agencies recognize the important role that responsibly offered small-dollar loans can play in helping consumers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries,” the agencies said in the statement.  

Specific types of loans mentioned in the statement include “open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.”

According to a report issued last year by the Federal Reserve Board of Governors, 39 percent of adults in America would not be able to cover an unexpected expense of $400 with either cash, savings, or a credit card paid off at the next statement. 27 percent of adults would have to borrow or sell something to meet the emergency financial expense, while 12 percent would be unable to cover it at all. Furthermore, 17 percent of adults are unable to cover all of their current months bills in full, and an additional 12 percent would be unable to pay their current month’s bills in full if they also had an unexpected $400 expense they had to pay.

While the five agencies specifically cited the need for small dollar credit during the COVID-19 crisis, they also reaffirmed that the need for such credit access exists during non-crisis periods as well.

“The agencies also recognize that responsible small-dollar loans can benefit financial institution customers in more normalized times when unexpected expenses occur or there are temporary income short-falls,” the agencies wrote. “The agencies are working on future guidance and lending principles for responsible small-dollar loans to facilitate the ability of financial institutions to more effectively meet the ongoing credit needs of their communities and customers.”