Yesterday, the Office of the Comptroller of the Currency issued a bulletin encouraging national banks and federal savings associations to make short-term, small-dollar installment loans that are both safe and affordable available to consumers.
The bulletin observes that despite the need, many banks have withdrawn from this market, forcing consumers to turn to non-bank lenders. The bulletin encourages banks to fill the gap and sets forth three general lending principles that banks should bear in mind when offering short-term, small-dollar installment lending products:
- All bank products should be consistent with safe and sound banking, treat customers fairly, and comply with applicable laws and regulations.
- Banks should effectively manage the risks associated with the products they offer, including credit, operational, compliance, and reputation.
- All credit products should be underwritten based on reasonable policies and practices, including guidelines governing the amounts borrowed, frequency of borrowing, and repayment requirements.
With respect to the last principle, the bulletin provides further guidance on what constitutes reasonable policies and practices, including but not limited to: loan amounts and repayment terms that align with eligibility and underwriting criteria, fair treatment of loan applicants, and pricing scaled to product risks and costs.
Notably, the OCC also stated that it “views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).”
Subsequent to this announcement by the OCC, the Acting Director of the Bureau of Consumer Financial Protection, Mick Mulvaney, issued a statement applauding the OCC’s move.