The Federal Deposit Insurance Corporation (FDIC) announced that it is has issued a request for public comments related to small-dollar lending by financial institutions.
The Request for Information (RFI) aims to gather more information on the consumer demand for small-dollar credit products, as well as what products are currently being offered by banks and what the FDIC can do to better enable banks to offer responsible credit products to their customers.
“While it would be optimal if all Americans could meet their financial needs without the need to borrow money or sell something,” said Chairman Jelena McWilliams in a press release, “studies have shown that unfortunately that is not the reality for many Americans. Consumers benefit when small-dollar credit products are available from banks. I encourage the public to use the RFI process to tell us how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner."
Recent research from the FDIC shows 20 percent of U.S. households said that their income varied “somewhat” or “a lot” from month to month. In addition, research from the Federal Reserve revealed that if faced with an unexpected $400 expense, four in 10 U.S. adults in 2017 would have to borrow or sell something to pay for it — or simply not be able to cover it at all.
With that in mind, the FDIC suggests that in 2017, 14.8 million (or nearly 13 percent) of U.S. households may have had unmet demand for small-dollar credit from traditional financial institutions. But while the majority (nearly nine in 10) had a bank account, fewer than one in three of the households applied for credit from a bank. As a result, online lenders have flooded the market, some of them focusing on consumers with low credit scores or no scores at all.
Earlier this year, Comptroller of the Currency Joseph Otting said that rules on short-term, small-dollar lending should be relaxed so U.S. banks are able to offer loans to cash-strapped consumers.
“If we can get people back into the regulated market, that will be better for them and the economy,” said Otting.