In a sixth white paper to the Treasury Department today, ABA highlighted the important role that small-dollar credit plays in helping consumers meet their financial needs, and called on regulators to remove barriers that impede banks from making small-dollar loans. The white paper is part of the banking industry’s continuing response to President Trump’s executive order outlining “core principles” for financial regulation.
ABA pointed out that there is a genuine consumer need for small-dollar credit, and noted that curbing small-dollar lending by banks could drive consumers toward “informal” sources. A number of recent regulations have hindered banks’ ability to offer small-dollar loans, ABA said. These include: the CARD Act, which limited card issuers’ ability to adjust conditions (including rates and terms) to cover changes and risk; guidance by the OCC and FDIC on direct deposit advances, which drove all but one bank offering the product to exit the market; and FDIC overdraft guidance that has limited consumers’ ability to use overdraft as a short-term credit source.
ABA noted that the CFPB’s proposed small-dollar lending rule — which establishes “ability-to-repay” requirements — would further limit credit access. The association added that while the bureau included an exemption for banks within the rule, qualifying for the exemption would be unworkable.
The white paper also included a study commissioned by ABA on the usage of overdraft protection by American consumers. The study found that overdraft users “realize an economic benefit of over seven-to-one of funds extended to fees charged, pumping $65.6 billion annually into the larger economy,” and that consumers lose an average of $443 in purchasing power for each transaction that is declined, rather than covered by overdraft.