Regulators Encourage Banks to Make Small Dollar Loans

The FDIC and other regulators announced in a joint statement yesterday that banks should re-enter the business of making short term, small dollar loans to consumers; by making this announcement regulators hope to steer consumers away from expensive payday loans; the federal agencies said that small dollar loans can help consumers “meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income shortfalls during periods of economic stress or disaster recoveries”; the OCC has been encouraging banks to offer small dollar loans since 2018; some banks, such as US Bank, already have a robust small dollar loan program in place, offering loans for three months at a 71% effective annual rate; in response to the coronavirus US Bank has announced that it has halved the fees on this product to $6 for every $100 borrowed. The Wall Street Journal

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