Regulators Can Encourage More Banks to Offer Small Loans

In May 2020, federal regulators issued joint guidance enabling banks to make affordable small-dollar installment loans to their customers, which could save consumers—especially low- and moderate-income families who would otherwise turn to high-cost payday loans—billions of dollars each year. And as of late 2022, seven of the 12 largest banks have launched or announced products that will expand access to credit for their customers.

Now, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. are considering updates to regulations implemented under the 1977 Community Reinvestment Act that could further encourage financial institutions to offer these loans. The Pew Charitable Trusts submitted comments to the agencies calling on these regulators to promote widespread availability of small installment loans and lines of credit in the banking system.

The comment letter also touched on two other topics of concern. It urged federal bank examiners to scrutinize risky rent-a-bank lending with extreme loss rates and summarized Pew’s growing body of research on available home financing products—and the need for more safe options—for the purchase of low-cost homes.