On November 14, 2018 the FDIC issued a nine-page request for information on small dollar lending, including steps that can be taken to encourage FDIC-supervised financial institutions to offer small-dollar credit products that are responsive to customers’ needs and that are underwritten and structured prudently and responsibly. The request was issued as FIL-71-2018. Comments will be accepted for 60 days following publication in the Federal Register, which is expected soon.
The FDIC recognizes the important role small-dollar credit products can play, as part of the spectrum of credit and savings products offered by banks, in helping consumers meet the need for credit for purposes such as addressing cash-flow imbalances, unexpected expenses, or income volatility. Recent research from the FDIC indicates that 20 percent of U.S. households reported that their income varied “somewhat” or “a lot” from month-to-month. Moreover, according to research from the Federal Reserve, if faced with a hypothetical $400 expense, 4 in 10 U.S. adults in 2017 would borrow, sell something, or not be able to pay.
Comments are requested on the following topics:
Consumer Demand
- To what extent is there an unmet consumer demand for small-dollar credit products offered by banks?
- To what extent do banks currently offer small-dollar credit products to meet consumer demand?
- To what extent and in what ways do entities outside the banking sector currently satisfy the consumer demand for small-dollar credit products?
- What data, information, or other factors should the FDIC consider in assessing the consumer demand for small-dollar credit products?
Benefits and Risks
- What are the potential benefits and risks to banks associated with offering responsible, prudently underwritten small-dollar credit products?
- What are the potential benefits and risks to consumers associated with bank-offered small-dollar credit products?
- What are the key ways that banks offering small-dollar loan products should manage or mitigate risks for banks and risks for consumers?
- What are the potential benefits and risks related to banks partnering with third parties to offer small-dollar credit?
- What steps could the FDIC take, consistent with its statutory authority, to encourage banks to develop and offer responsible, prudently underwritten small-dollar credit products?
Challenges
- Are there any legal, regulatory, or supervisory factors that prevent, restrict, discourage, or disincentivize banks from offering small-dollar credit products? If so, please explain.
- Are there any operational, economic, marketplace, or other factors that prevent, restrict, discourage, or disincentivize banks from offering small-dollar credit products? If so, please explain.
- What factors may discourage consumers from seeking responsible, prudently underwritten small-dollar credit products offered by banks?
Product Features
- Are there specific product features or characteristics of small-dollar loan products that are key to meeting the credit needs of consumers while maintaining prudent underwriting?
- Are there specific product features or characteristics that are key to ensuring the economic viability to a bank of responsible, prudently underwritten small-dollar credit products?
Innovation
- How can technology improve the ability of banks to offer responsible, prudently underwritten small-dollar loan products in a sustainable and cost-effective manner? Please specify the technology or technologies and the use case(s).
- Are there innovations that might enable banks to better assess the creditworthiness of potential small-dollar loan borrowers with limited or no credit records with a nationwide credit reporting agency?
- What role should the FDIC play, if any, in supporting innovations that enhance banks’ abilities to offer responsible, prudently underwritten small-dollar loans? Are there specific barriers that prevent banks from implementing such technologies or innovations?
- How can technology be leveraged to improve consumers’ experiences and reduce potential risks to consumers associated with small-dollar credit products?
Alternatives
- What other products and services that supplement or complement small-dollar credit offerings should banks consider? Are there other ways that banks can help consumers address cash-flow imbalances, unexpected expenses, or income volatility besides small-dollar credit products?
Other
- Are there any distinguishing characteristics of particular institutions, such as a bank’s size, complexity, or business model, that the FDIC should consider, and if so how?
- Please provide any other comments or information that would be useful for the FDIC to consider.
Other recent news on small dollar loans is available at: https://mycomplianceresource.com/bcfp-puts-brakes-on-payday-loans/
A copy of the FIL is available at https://www.fdic.gov/news/news/financial/2018/fil18071.html?source=govdelivery&utm_medium=email&utm_source=govdelivery.
A copy of the request for information is available at: https://www.fdic.gov/news/news/press/2018/pr18084a.pdf