Small dollar loans can be quite profitable. Just look at the number of payday loan stores in the US, there are more than 20,000 of them. The reason they can be so profitable is that four out of five payday loans are rolled over or renewed according to the CFPB. For the most part banks have stayed away from actively promoting a small dollar loan product and the FDIC wanted to know why and what conditions might lead to them to offer them.
So, back in November the FDIC issued a Request for Information on Small Dollar Lending. They received more than 60 responses from banks, industry associations, non-profit groups, fintech companies and individuals. While each group had a slightly different perspective there was an acknowledgement of the challenge of making small dollar loans both affordable for consumers and profitable. While the FDIC did not define exactly what they meant by a small dollar loan the respondents, for the most part, took it to mean loans of less than $5,000.
There are many mainstream online lenders offering personal loans down to $1,000 and there are also many fintech companies offering loans under $1,000. Companies like Oportun, Insikt, LendUp, Elevate, Opploans and many others offer these sub-$1,000 loans using the latest technology tools to make this process more efficient. Often these companies partner with banks to facilitate these loans to underserved consumers. But there are few banks offering online sub-$1,000 loans directly with a notable exception being US Bank. Interestingly, they did not respond to the FDIC request.
Many industry associations did respond and I provide a summary of a few of these responses below.
The Marketplace Lending Association (MLA) provided a detailed 10-page response where they urged the FDIC (and other regulators) to do more to support banks and foster closer working relationships with fintech providers: [Read more…]