Encourage Small-Dollar Bank Lending, House Republicans Tell FDIC, Fed

Twelve House Republicans today urged the FDIC and the Federal Reserve to follow the OCC’s lead by encouraging banks to return to the small-dollar loan market. “The previous administration’s decision to significantly limit financial institutions from making short-term, small-dollar consumer loans has reduced consumer choice and hindered competition in the marketplace,” they wrote. “We believe that financial regulatory policy should allow depository institutions to meet the demand for these loans, and that additional supply and competition lead to a healthier, more vibrant economy.”

The OCC in May 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. Under the OCC’s guidance, small-dollar lending programs should be consistent with safe and sound banking 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. The agency also called for banks to report repayment activity of small-dollar loan customers to the credit bureaus to help borrowers improve their credit scores.