WASHINGTON—The Pew Charitable Trusts today praised the Office of the Comptroller of the Currency (OCC) for formally encouraging banks to offer their customers safe, affordable small-dollar installment loans.
Millions of American adults, many of whom are low income and have damaged credit, spend more than $30 billion a year to borrow small amounts of money from payday and other high-cost lenders that operate outside the banking system. Pew research indicates that, given the opportunity, 8 in 10 payday loan borrowers would prefer to get credit from their banks or credit unions.
Based on years of research and conversations with regulators and bankers, Pew has recommended criteria that new, scalable, and consumer-friendly small-dollar credit products from banks and credit unions should meet.
Numerous banks have expressed interest in offering small installment loans, and the OCC’s action removes much of the regulatory uncertainty that has prevented them from entering the market. Pew’s research indicates that by using automated underwriting and origination to keep their costs low, banks and credit unions can offer small-dollar credit profitably at prices six times lower than average payday loans. Pew’s recommended criteria would enable the necessary automation while providing strong consumer protections.
Nick Bourke, director of Pew’s consumer finance project, said of the new OCC bulletin:
“The position outlined by the Comptroller is a welcome step that should help pave the way for banks to offer safe, affordable small-dollar installment loans to the millions of Americans that have been turning to high-cost nonbank lenders. If banks begin offering these loans according to strong safety standards, it could boost financial inclusion and be a game-changer for the millions of Americans who use high-cost loans today.
“We encourage the other federal bank and credit union regulators to follow the Comptroller’s lead and institute the necessary standards to ensure the development of safe and affordable small installment loans that will save millions of borrowers billions of dollars a year.”
More information on the regulatory landscape for small-dollar loans is available at www.pewtrusts.org/small-dollar-loans.
The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at www.pewtrusts.org.