ABA Survey: Banks Are Making Effective Small Dollar Loans

A large majority of banks provide small dollar loans effectively (with low charge-offs) and have the capacity to expand their small dollar lending, were market and regulatory conditions to allow for it, according to an ABA survey of senior bank officers. More than one-third said they made personal loans of less than $5,000 as part of an established program, and nearly half said they had done so in the past year to accommodate a customer who asked for a loan.

The survey showed that banks were using small dollar loans to meet low-income and rural credit needs. About 94 percent said that they made at least some small dollar loans to low-to-moderate income customers, and 58 percent of small dollar loans were made in rural communities.

One-third of banks making small dollar loans had no charge-offs, and only 4 percent reported a charge-off rate of more than 3 percent. More than half of community bank respondents said they charged an “all-in” APR in excess of 36 percent for the loan, which includes interest and all related fees. Just over half of the respondents said they made more than 50 such loans in 2014, and about half said the average loan amount was between $2,000 and $5,000. Nine in 10 banks secured at least some of their small dollar loans with a vehicle title.

The survey was conducted as part of ABA’s response to the Consumer Financial Protection Bureau’s proposed framework to regulate payday, vehicle title and other short-term loans and continues the association’s efforts to protect and expand small dollar lending by banks. The proposed CFPB framework would impose burdensome requirements on loans with all-in APRs exceeding 36 percent, such as requiring an “ability-to-repay” determination to be made for each loan and limiting repeat borrowing. For more information, contact ABA’s Jonathan Thessin.


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