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Regulators urge banks, credit unions to offer small-dollar loans

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Friday, March 27, 2020
Federal financial regulators issued new guidance in the hopes of encouraging banks and credit unions to issue small-dollar lending options to individuals and small businesses looking for liquidity in a time of business disruption.

The statement from the Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., National Credit Union Administration, and Office of the Comptroller of the Currency said the agencies recognized that responsible small-dollar loans can play an important role in meeting customers’ credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries.

“The agencies are issuing this statement to specifically encourage financial institutions to offer responsible small-dollar loans to both consumers and small businesses,” the agencies said in a statement.

Such loans can be offered through a variety of structures, they stated, including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.

“The agencies state that loans should be offered in a manner that provides fair treatment of consumers, complies with applicable laws and regulations, and is consistent with safe and sound practices,” they stated. “For borrowers who experience unexpected circumstances and cannot repay a loan as structured, banks, savings associations and credit unions are further encouraged to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow.”

The statement added that the agencies recognized that responsible small-dollar loans could benefit customers in more normalized times, when unexpected expenses occur or there are temporary income short-falls. To that end, they said they were working on future guidance and lending principles for responsible small-dollar loans to facilitate the ability of banks, credit unions, and saving associations to more effectively meet the ongoing credit needs of their customers, members, and communities.

Consumer Bankers Association President and CEO Richard Hunt said the industry was prepared to meet demand for lending.

“Americans do not have the funds to cover emergency expenses and the longer hourly workers go without regular pay or small businesses are forced to shut their doors, the more exacerbated the problem will become. Previous guidance issued by regulators years ago cut off banks’ ability to offer customers short-term liquidity,” Hunt said in a statement. “During this pandemic, banks are ready, eager and already working with Americans and small-businesses in need. The flexibility regulators have given, combined with their statement today, will help banks more readily adapt to meet consumer demands.

“It is clear, however, that millions of Americans needed short-term financial assistance before coronavirus and will continue to need it after the immediate impact is over. We look forward to regulators issuing joint guidance in the near future.”

The announcement came a day after the Federal Financial Institutions Examination Council (FFIEC), which includes all five of those agencies, met and announced the FFIEC was monitoring and responding to the COVID-19 pandemic.

“FFIEC members, who met as a group yesterday, are actively discussing and identifying appropriate measures, both collaboratively and individually, to maintain safety and soundness while protecting consumers,” the FFIEC said in a statement. “Members note that banks and credit unions of all sizes have built up substantial levels of capital and liquidity over the last decade, positioning them well to support the needs of households and businesses.”

The statement said the FFIEC’s federal banking agencies would allow institutions an extra 30 days to submit Call Reports which were scheduled to be reported by March 31.

“Institutions are encouraged to contact their primary federal regulator in advance of the official filing date if they anticipate a delayed submission,” the FFIEC stated.

The FFIEC also said it would provide guidance to financial institutions and work with state and local officials on how to identify workers as essential critical infrastructure workers to ensure the security and resilience of the nation’s critical infrastructure.

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