On May 20, FDIC issued joint release principles for small-dollar loans.
Federal financial institution regulatory agencies issued joint principles for offering small-dollar loans in responsible manner to meet customers' short-term credit needs.
Joint release published by Federal Reserve Board, FDIC, NCUA, OCC, CFPB.
Agencies had previously adopted separate, conflicting guidance on small-dollar loans.
By adopting interagency guidance, all financial institutions provided uniform principles.
Follows Mar. 2020 Agency statement on responsible small dollar lending, see #74668.
On May 21, 2020, NACHA published update on joint release of small-dollar loans.
Interagency Guidance Provisions
Agencies recognized important role responsibly offered small-dollar loans can play in helping customers meet ongoing needs for credit due to various financial issues.
Loan policies, risk management practices should address loan structures, loan pricing, loan underwriting, loan marketing and disclosures, and loan servicing and safeguards.
Lending principles designed to cover variety of small-dollar loan structures.
Covered open-end lines of credit with minimum payments/closed-end loans with appropriate shorter-term single payment/longer-term installment payment structures.
FDIC rescinded 2007, 2013 letters, made technical corrections, reissued guidance from letter from 2015, to address previous guidance conflicts on small-dollar loan products.
OCC rescinded Bul 2018-14, Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending previously issued on May 23, 2018.
Reserve Banks distributed letter to Federal Reserve-supervised financial institutions in their districts, as well as to their supervisory, examination staff regarding principles.
Responsible Program Characteristics
High percentage of customers successfully repaid loans in accordance with original loan terms, a key indicator of affordability, eligibility, and appropriate underwriting.
Loan repayment terms, pricing, and safeguards minimized adverse customer outcomes, which would include cycles of debt due to rollovers or reborrowing.
Repayment outcomes, program structures enhanced borrower’s financial capabilities.
Agencies Core Lending Principles
Consistent with safe, sound banking, fair treatment, complied with laws, regulations.
Products risks effectively monitored, including credit, operational, compliance.
Loan products underwritten based on prudent policies and practices governing the amounts borrowed, frequency of borrowing, and loan repayment requirements.
May 22, 2020 NCUA Principles
On May 22, 2020 NCUA issued 20-CU-15 to federally insured credit unions reiterating previous guidance, encourage consideration of providing responsible small-dollar loans.
Stated that federal credit unions can also provide their members responsible small-dollar loans by offering Payday Alternative Loans (PALs) under NCUA regulations.
PALS listed as generally consistent with interagency small-dollar lending principles, but CUs offering PALs must follow specified regulatory framework for those loan programs.
May 22, 2020 BPI No-Action Templates
On May 22, 2020 BPI informed CFPB's approval of BPI filed No-Action Letter Template that would establish criteria, operating guardrails to offer small-dollar loan products.
Covered amounts up to $2,500 in form of an installment loan or line of credit product.
Banks still required to submit a No-Action Letter with CFPB for any new small-dollar loan product but can base their application on this framework, expedited approval.
Jul. 24, 2020 Rescinded 2013 Guidance
On Jul. 24, 2020, FDIC issued notice of rescission of 2013 guidance, in federal register.
Titled, Guidance on Supervisory Concerns, Expectations Re Deposit Advance Products.