Bank Regulation

OCC Puts Small-Dollar Loans Back In The Spotlight

The Office of the Comptroller of the Currency (OCC) issued a new guidance encouraging banks to offer responsible short-term, small-dollar loans to their customers. The guidance did not change any regulation, but clarified the regulator’s stance on the loans, Reuters reported.

In 2013, the OCC had discouraged short-term lending by banks with limitations on what could be offered to customers depending on their credit. The rules were rescinded in 2017, leading to this guidance.

The Consumer Bankers Association (CBA) said on Wednesday (May 23) that it welcomed a bulletin issued by the OCC. In a press release, the trade group said that in the past, the guidance has been to discourage these types of small-dollar loans; after the guidance was rescinded, banks weren’t sure whether they would be able to go back into the market. Further uncertainty was added to the mix by the Consumer Financial Protection Bureau (CFPB), noted the CBA.

“Study after study has shown that millions of Americans do not have enough money in their bank account to pay unexpected bills, ranging from auto repairs to medical expenses,” said CBA president and CEO Richard Hunt in a press release. “Regulatory uncertainty forced banks out of this space, leaving families to rely on pawn shops, costly payday lenders or loosely regulated online lending during times of financial stress. This guidance sends a clear signal [that] bankers can help customers receive short-term loans within the well-regulated, cost-effective banking system.”

The acting director of the CFPB, Mick Mulvaney, also issued a statement of this support. “I applaud Comptroller [Joseph] Otting’s move to encourage national banks and federal savings associations to offer short-term, small-dollar installment loans,” he said. “Millions of Americans desperately need access to short-term, small-dollar credit. We cannot simply wish away that need. In any market, robust competition is a win for consumers. The Bureau will strive to expand consumer choice, and I look forward to working with the OCC and other partners on efforts to promote access and innovation in the consumer credit marketplace.”

Pointing to the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2017” issued in May, the CBA said the Fed found that about 40 percent of adults would not be able to pay an unexpected $400 expense without borrowing funds or selling a personal item.

Prior to the guidance from the OCC and Federal Deposit Insurance Corporation (FDIC) in 2013, a number of banks offered short-term, small-dollar lending products, known as deposit advance products (DAPs). The report said that 2013 FDIC and OCC guidance eliminated the ability of banks to offer a viable alternative to compete with payday lending.

The CBA noted that it has long advocated for regulators to adjust the guidance, so that banks can re-enter the small-dollar lending market and provide consumers with small-dollar loans that are safe and affordable.

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