WASHINGTON — The Federal Deposit Insurance Corp. is soliciting comment on how to encourage small-dollar lending at banks, signaling a course change from guidance it issued five years ago restricting such loans.
The FDIC’s request for information issued Wednesday specifically asks about consumer demand for small-dollar credit, the supply offered by FDIC-insured banks and what the agency can do to help banks “offer responsible, prudently underwritten credit products."
“The bottom line here is we’re trying to make an informed opinion and policy on how to proceed with short-term lending,” FDIC Chairman Jelena McWilliams said in an interview following the announcement. If small-dollar lending is “done by banks, we can regulate them. And we are able to work with the banks on how to ensure the consumer protection protocols are in place and compliant while making sure that the consumers’ needs are met.”
The move is seen as the agency's first step toward altering 2013 guidance issued by the FDIC and the Office of the Comptroller of the Currency that restricted deposit-advance products and caused most traditional banks to leave the business. The OCC has since rescinded that guidance and issued a new bulletin in May to encourage banks to get into certain small-dollar lending with maturities of 45 days or more.
However, McWilliams cautioned that the FDIC’s request is not an indication that the agency will follow the OCC in rescinding its 2013 guidance. Rather, it’s the first step in gathering public feedback on what to do next, McWilliams said.
“If I wanted to just . . . rescind the guidance, I could have done that on June 5” after taking office, McWilliams said. “What I’m trying to do is make an informed decision here. And that decision is best made if we involve the public and get comments from both the banks and the consumer groups, and the consumers themselves.”
The FDIC is also seeking comment on all types of small-dollar lending by not setting a dollar amount or terms to how they define it.
“There’s no back agenda here,” McWilliams said, when asked whether there were thresholds. “We’re trying to gain as much information that we can gain on how the consumers use these products; what is the need; what works in terms of how we can make sure these products are offered in a safe and sound way that makes economic sense for the banks and provides enough consumer protection.”
McWilliams is keen on small-dollar needs for consumers and has mentioned how
Despite a growing shift in bank regulators being more open to small-dollar lending, the industry has been slow to embrace it again because many institutions are waiting to ensure regulators are on the same page.
“About half of all American families cannot cover emergency bills ranging from car repairs and medical expenses to child care. Policies in Washington have forced these consumers to rely on less-regulated lenders like pawn shops or overseas and online lenders, instead of turning to well-regulated banks to meet their unique financial needs,” Richard Hunt, the president of the Consumer Bankers Association, said in a press release. “The banking industry stands ready to help customers facing economic hardships and the FDIC should be commended for recognizing this critical consumer need.”
The comment period for the FDIC’s request on small-dollar lending closes 60 days from being published in the Federal Register.
