Bank of America plans to offer some of its customers access to short-term loans, the latest blow to the payday lending industry.
Customers who have had checking accounts for more than a year can apply to borrow as much as $500 for a flat $5 fee, the Charlotte, N.C.-based lender said Thursday. The bank will require that the advance, available in increments of $100, be paid back in three equal installments over 90 days.
“Customers have told us they have that need for liquidity,” Kevin Condon, senior vice president for consumer-deposit and small-business products at Bank of America, said in an interview. “We want them to stay within mainstream banking to do that.”
Even before the coronavirus pandemic, about 40% of U.S. adults said they would struggle to pay for an unexpected $400 expense such as a car repair or a small medical bill, according to a
That has consumer advocates worried about a surge in the use of so-called payday lenders, which charge high annual percentage rates for short-term loans. In response, regulators including the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency have been
In May, regulators released guidance to further encourage lenders to engage in small-dollar lending. In the notice, the overseers said the structure of the loans should make it so a borrower is able to successfully repay the loan in a “reasonable time frame rather than reborrowing, rollovers, or immediate collectability in the event of default.”
Borrowers’ repayment behavior on the loans, which Bank of America is calling Balance Assist, will be reported to major credit bureaus, Condon said. The bank will use data it gathers from customers’ checking accounts along with outside credit information to determine eligibility, he said.
For Bank of America, Balance Assist follows efforts such as its SafeBalance Banking account, which eliminated overdraft fees and has attracted 2 million clients since its debut in 2014.
“This is part of the journey that we’ve been on for quite some time,” Steve Boland, president of retail at Bank of America, said in an interview. “I would hope that we’ll see really favorable reactions from all key constituents as they hear about the solution.”
Credit reports
Borrowers’ repayment behavior on the loans, which Bank of America is calling Balance Assist, will be reported to major credit bureaus, Condon said. The bank will use data it gathers from customers’ checking accounts along with outside credit information to determine eligibility, he said.
For Bank of America, Balance Assist follows efforts such as its SafeBalance Banking account, which eliminated overdraft fees and has attracted 2 million clients since its debut in 2014.
“This is part of the journey that we’ve been on for quite some time,” Steve Boland, president of retail at Bank of America, said in an interview. “I would hope that we’ll see really favorable reactions from all key constituents as they hear about the solution.”
