Headquarters of FDIC, Washington, D.C.
The FDIC is asking banks whether they would like to go into the small-dollar credit business.
In an announcement Tuesday, the FDIC said it would solicit comments from banks, consumer groups and others about whether banks could offer, a competitive, yet profitable small-dollar loan product.
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"While it would be optimal if all Americans could meet their financial needs without the need to borrow money or sell something studies have shown that unfortunately that is not the reality for many Americans," said FDIC Chairman Jelena McWilliams. "Consumers benefit when small-dollar credit products are available from banks."
Regulators have been struggling with how—or even whether—short-term loans should be regulated.
In its request for information, the FDIC said it wants to measure the demand for short-term loans and whether there are steps the agency could take to better enable banks to offer small-dollar loans.
Agency officials said that recent research showed that 20% of U.S. households reported that their income varied from month to month. Agency research also showed that nearly 13% of U.S. households may have unmet needs for small-dollar credit from banks. And although the vast majority had banks accounts, fewer than one in three of those households applied for credit from a bank.
The FDIC is not alone in struggling with this issue.
The CFPB, under former Director Richard Cordray, issued strict rules governing the payday loan industry, alleging that store-front lenders charge exorbitant fees and interest rates that lock borrowers into a cycle of debt.
However, when he took over the agency, Acting Director Mick Mulvaney said the agency intends to revisit those rules.
Meanwhile, the CFPB rules provided an exemption for loans modeled after the NCUA's Payday Alternative Loan program.
But the NCUA has found that only a small number of credit unions offer those loans. The agency has proposed a new loan program to supplement the PAL program.
But the design of the proposed program drew harsh criticism from both credit unions and consumer groups.
The NCUA is expected to propose a revised program in the coming months.
A critic of the payday lending industry said he welcomed the FDIC announcement.
"For far too long, struggling households have been turned down for loans by banks and instead have turned to high-cost credit such as payday loans," said Nick Bourke, director of The Pew Charitable Trusts' consumer finance project. "The FDIC clearly recognizes this problem and would be taking a step in the right direction by enabling banks to offer affordable small installment loans—which could help millions of borrowers save billions of dollars annually."
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