The Office of the Comptroller of the Currency, a federal regulator that oversees large, national banks, has come forward with an endorsement for the financial services firms it regulates to get into the short-term, small-dollar lending market.
Traditionally known as payday loans, small-dollar loans have traditionally been the market of storefront organizations that have often been accused of taking advantage of uneducated and unsuspecting consumers by trapping them in products that cause significant financial harm.
The Bureau of Consumer Financial Protection had previously issued a rule governing small-dollar lending, but acting director Mick Mulvaney has delayed the implementation of that rule while the new regime at the agency re-considers it.
In issuing its guidance, the OCC encouraged banks to offer “responsible” products to help meet the needs of consumers.
“Banks can provide affordable short-term, small-dollar installment lending options that help consumers, including consumers with weaker credit histories who have the ability to repay,” said Joseph Otting, the Comptroller. “Bank-offered products can help lead consumers to more mainstream financial services without trapping them in cycles of debt. When banks offer products with reasonable pricing and repayment terms, consumers also benefit from other services that banks regularly provide, such as financial education and credit reporting.”
The guidance including a set of “core” lending principles that banks should follow when making small-dollar loans.
To the surprise of nobody, the CFPB applauded the OCC’s guidance.
“I applaud Comptroller Otting’s move to encourage national banks and federal savings associations to offer short-term, small-dollar installment loans,” said acting director Mick Mulvaney in a statement. “Millions of Americans desperately need access to short-term, small-dollar credit. We cannot simply wish away that need. In any market, robust competition is a win for consumers. The Bureau will strive to expand consumer choice, and I look forward to working with the OCC and other partners on efforts to promote access and innovation in the consumer credit marketplace.”
For the ARM industry, the entry of banks into the small-dollar lending market could be a very intriguing opportunity. As payday lending has become more scrutinized, the amount of payday loan portfolios available to be purchased has shrunk. An influx of banks making small-dollar loans could change that dynamic. And more financial institutions are getting back into selling portfolios. Having portfolios of small-dollar loans might be something they would consider selling, as well.
