CFPB grants safe harbor to Bank of America for small-dollar loans

Bank of America became the first major bank to receive a “no-action letter” from the Consumer Financial Protection Bureau covering small-dollar loans.

The CFPB announced Thursday that it approved BofA’s no-action letter application that gives the the Charlotte, N.C., bank increased certainty that it will not receive a supervisory or enforcement action for a credit product that it plans to offer next year.

BofA said last month that it plans to roll out a short-term, payday loan beginning in January that allows checking account customers to borrow up to $500 for a flat fee of $5. Customers must have a checking account for at least a year and repay the loan in three, equal monthly installments over a 90-day period.

The move follows guidance issued by prudential regulators in May encouraging banks to embrace small-dollar lending to help consumers hurt by the coronavirus pandemic.

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“The Bureau approved the [no-action letter] Template to further competition in the small-dollar lending space, which fosters access to credit while including important protections for consumers who seek small-dollar loan products,” the CFPB said in a press release.

Bank of America’s application to the CFPB was based on a template requested by the Bank Policy Institute, a Washington trade group. The application came after the CFPB released an approved template in May that banks could use in seeking a no-action letter for offering loans or lines of credit for amounts of up to $2,500.

While the CFPB does not endorse specific products or providers, the template provides parameters that the bureau has approved. Companies can use the templates to get speedy approval of their own no-action letters.

The CFPB also said that it had submitted a Paperwork Reduction Act notice to the Office of the Federal Register related to the testing of consumer disclosures. In July, when the CFPB released its payday lending rule, the bureau said it was trying to identify information that could be disclosed to consumers during the small-dollar lending process to allow them to make informed choices.

“The testing of different consumer disclosures supports the Bureau’s commitment to ensuring that consumers have the information they need to understand the small dollar products available to them so they can make the choices that are best for them and their personal circumstances,” the bureau said.