Signaling a significant shift in the OCC’s approach to small-dollar lending, the agency today issued a bulletin encouraging banks to make “responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments” to help meet the credit needs of their customers.
The bulletin does not define how banks should underwrite small-dollar loans, but notes that small-dollar lending programs should be consistent with safe and sound bank practices, include an effective risk management framework and be underwritten based on reasonable policies and practices, which may include analysis of internal and external data sources such as the borrower’s deposit activity with the bank. It also calls for banks to report repayment activity of small-dollar customers to the credit bureaus to help borrowers improve their credit scores.
The American Bankers Association has long called on regulators to remove barriers that impede banks from making small-dollar loans, highlighting in a white paper to the Treasury Department last year that there is a genuine consumer need for small-dollar credit. “Today’s bulletin is a step in the right direction to help banks offer customers a variety of short-term credit products,” said ABA SVP Virginia O’Neill. “We appreciate that the principles outlined in the bulletin are not prescriptive and encourage banks to design their own underwriting and product features that promote access and treat customers fairly.”
ABA also welcomed the OCC’s willingness to work with the Consumer Financial Protection Bureau as it undertakes a review of its final payday lending rule, which establishes “ability-to-repay” requirements for single-payment loans and loans with a term of 45 days or less. “We look forward to working with these agencies to remove regulatory impediments that stand in the way of banks’ ability to meet consumers’ short-term credit needs,” O’Neill added. “Allowing banks to innovate will lead to more diverse products and greater consumer choice.”