McWilliams: Bank-Made Small-Dollar Loans Critical for Financial Inclusion

The FDIC is actively looking for ways to enable banks to offer small-dollar loans, FDIC Chairman Jelena McWilliams said today at a Cato Institute event, drawing an important link between the availability of these products and financial inclusion.

“If banks do not offer small-dollar products, consumers who need small-dollar loans do not event have an opportunity to become banked and start building credit histories,” McWilliams explained. She added that the agency is working to revise its policy framework “to encourage banks to offer small-dollar loan products to customers in need.”

She also touched on the importance of innovation but acknowledged that an overly complex regulatory environment may be hindering progress, especially for community banks. “If we want banks to focus on innovation and reaching more consumers, we have to relieve some of the unnecessary regulatory burden on those institutions so they can get back to the business of banking,” she said.

ABA VP Rob Morgan also spoke at the event, touching on how banks are using alternative data sources and some of the opportunities and challenges they provide. “Our banks think there’s a lot of opportunity for data to help drive financial inclusion and bring more people into the banking system,” Morgan said. However, he cautioned that “if used the wrong way, it could be used to exclude people,” underscoring the importance of employing transparent, explainable models for credit decisions.