The FDIC recently announced the issuance of guiding principles set forth by federal financial regulators to financial institutions offering small-dollar loans to meet customers’ short-term credit needs.
The Interagency Lending Principles for Offering Responsible Small-Dollar Loans encourages supervised banks, savings associations, and credit unions to offer small-dollar loans for consumers and small businesses, recognizing the extraordinary circumstances presented by the COVID-19 emergency and the need for such programs to continue in a responsible manner.
The principles jointly presented by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency emphasize that well-designed small-dollar loans and lending programs can foster successful loan repayment, positive credit behavior, and transition into other financial products. The responsible small-dollar loan program characteristics include (i) high rates of repayment among customers of small dollar loans, (ii) repayment terms and pricing that minimize negative consumer repayment outcomes, and (iii) repayment outcomes and program structures that improve borrowers’ financial capabilities.
Additional guidance in the joint statement suggests that lending institutions pursue reasonable loan policies and risk management practices characterized by sound loan structures, loan pricing, loan underwriting, loan marketing/disclosures, and loan servicing processes.