Agency Principles Small-Dollar Loans

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  • FDIC rescinded 2007, 2013 letters, made technical corrections, reissued guidance from letter from 2015, to address previous guidance conflicts on small-dollar loan products.
  • OCC rescinded Bul 2018-14, Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending previously issued on May 23, 2018.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.

Entity Types Bank; CNSM; CU; Thrift
Reference 85 FR 44685, 7/24/2020; PR, NCUA 20-CU-15 5/22/2020; FIL-58-2020, Fed SR 20-14, CA 20-8, NCUA PR, FDIC PR 61-2020, OCC PR 2020-65, OCC Bul 2020-54, 5/20/2020
Functions Financial; Legal; Operations; Reporting; Risk; Treasury
Countries United States of America
Products Banking; Loan
Regions Am
Rule Type Guidance
Rule Date 5/20/2020
Effective Date 5/22/2020
Rule Id 78137
Linked to Rule :74668
Reg. Last Update 7/24/2020
Report Section US Banking

Last substantive update on 07/27/2020