No, your eyes aren’t deceiving you. On Thursday, March 26, 2020, the federal banking agencies (i.e., the FDIC, CFPB, FRB, NCUA, and OCC) issued a joint statement encouraging banks and credit unions to offer responsible small-dollar loans to consumers and small businesses affected by COVID-19. Many of us might remember the days of “Operation Chokepoint” in the 2010s (where small-dollar payday lenders were allegedly targeted), but those days are long gone. At least for now, the regulators recognize the importance of “responsible” small-dollar lending (by their supervised financial institutions) in response to the COVID-19 emergency.
The banking agencies acknowledge that COVID-19 has caused significant disruptions in the lives of consumers and small businesses, including cash-flow imbalances, unexpected expenses, and income shortfalls. In their joint statement, the regulators encourage financial institutions to offer small-dollar loans to help meet the credit needs of these affected customers. The regulators note that lenders could offer these loans in many forms, including open-end lines of credit, closed-end installment loans, or single payment loans. Financial institutions are also encouraged to think about workout strategies that enable distressed borrowers to repay the principal of their loans while mitigating the need to re-borrow. Continue Reading