Agencies Encourage Banks to Engage in Responsible Small-Dollar Lending

The federal financial regulators today issued a joint statement urging financial institutions to offer “responsible small-dollar loans to both consumers and small businesses.” Such offerings should be made in accordance with safe and sound banking practices, and should ensure fair treatment of consumers and comply with applicable statutes and regulations, including consumer protection laws, the agencies said.

“The current regulatory framework allows financial institutions to make responsible small-dollar loans. Such loans can be offered through a variety of loan structures that may include, for example, open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans,” the agencies said. “For borrowers who experience unexpected circumstances and cannot repay a loan as structured, financial institutions are encouraged to consider workout strategies designed to help enable the borrower to repay the principal of the loan while mitigating the need to re-borrow.”

The agencies also signaled that they plan to issue additional guidance on small-dollar loans to help banks and credit unions continue to meet the needs of customers who may be facing extreme financial hardships.