A recent FDIC request for information (RFI) suggests the FDIC is interested in enabling banks to offer small, short-term loans to consumers. Over the coming weeks the FDIC will be taking comments on the matter. After analyzing the comments received, the FDIC may issue guidance or regulations encouraging banks to offer these products.
FDIC data suggests that 13% of U.S. households have unmet demand for small loans from banks, representing 14.8 million potential financial consumers. This correlates with a 2017 Fed survey showing that 40% of U.S. adults would not be able to pay a $400 bill without borrowing, selling, or going broke. The FDIC wants this demand met by insured, stable, and well-regulated banks.
The FDIC’s RFI follows efforts by the Office of the Comptroller of the Currency to similarly encourage small-dollar lending by banks. The Comptroller believes that banks’ increased small-lending supply will decrease consumers’ costs and promote their long-term financial goals. The FDIC likely believes the same.
Specific comment areas the FDIC is concerned with include:
-
The small-dollar products currently offered and how much demand is unmet?
-
The potential for banks to work with third-parties
-
Risk factors
-
Regulatory or other legal factors discouraging these loans
-
Using technology to improve services
Interested parties may submit comments until January 22, 2019.
Movements by the FDIC and other federal regulators suggest that the Trump administration is pushing heavily towards making widespread small-dollar lending at banks commonplace. While the increased competition will hurt payday lenders, it should benefit consumers. Importantly, due to the complex nature of the industry, FDIC-insured lenders should consult counsel concerning any new regulations.
