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Financial regulators issue joint statement encouraging small-dollar loans

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Financial regulators issue joint statement encouraging small-dollar loans

Bank and credit union regulators want to encourage small-dollar loan originations for businesses and consumers affected by the novel coronavirus pandemic, but there are no plans for a new rule change.

In a statement, regulators from the Federal Reserve System, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau encouraged lenders to provide small-dollar loans, which have been a subject of scrutiny. Many banks discontinued offering the product following 2013 guidance from the OCC and FDIC that discouraged small-dollar loans, but the OCC rescinded its guidance in 2017 and FDIC Chair Jelena McWilliams has signaled her support for the lending activity.

During a media call, agency staff said regulators expect to issue further guidance but are not considering a rule change. Staff said the small-dollar loans are not meant to be payday loans. Institutions can use lines of credit, installment loans, single-payment loans or other lending types to help meet the needs of their communities. The terms will be determined by institutions and borrowers, not by regulators.

"The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers 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 wrote in the statement.

Current rules will apply to the small-dollar loans. Agency staff said they wanted to act quickly to issue the statement in order to let lenders know regulators support this lending activity.

The statement is specifically designed to quickly help lenders assist their communities through the coronavirus crisis, agency staff said. There is currently no timeframe for removing this guidance, but future guidance may change or modify this statement, they said.