Comptroller of the Currency Indicates Banks May Soon Receive Direction Re: Small-dollar Loans

At a recent press roundtable, Comptroller of the Currency Joseph Otting told reporters that he and bank regulators such as the OCC hope to soon take action that will allow banks to more easily offer small-dollar loans (ranging between a few hundred to a few thousand dollars). It is hoped that banks will then offer these types of loans more widely to provide consumers with an alternative to using payday lenders and check cashers. “The national banks are waiting to see what the regulatory community is going to come up with in the form of either guidance or a rule, and we’re hopeful that we’re going to be able to produce a joint agency document sometime early this year,” Otting stated.

Since the OCC’s May 2018 bulletin encouraging financial institutions to begin offering installment loans with terms from 45 days to one year, only a very small number of banks have done so. The only large bank to provide such an offering so far is U.S. Bank with its “Simple Loan” product, which makes installment loans of $100-$1000 available to its checking account customers. Otting indicated that the U.S. Bank product aligns well with his vision of what he would like to see more financial institutions offer, stating: “That product has kind of like hit the button, so to speak, of fulfilling the needs of a client of theirs that doesn’t force them outside the banking system to find a product like that.” However, U.S. Bank’s product also highlights a conflict between regulators and legislators on this topic. House Financial Services Chairwoman, Maxine Waters has expressed that she would like to impose a 36 percent rate cap on all consumer loans, which banks say would make it more difficult for them to then offer small-dollar loans as widely without incurring losses.