The Office of the Comptroller of the Currency voiced its support for banks offering short-term, small-dollar installment loans with maturities greater than 45 days.
The OCC said in a bulletin May 23 that the clarification
"A lot of banks wanted to hear from us that we were supportive of them entering the market and doing it below historical underwriting standards," Comptroller Joseph Otting told reporters.
Although the bulletin reminds OCC-supervised banks that small-dollar installment loans should still support borrower affordability and comply with state usury laws, the OCC says the guidance will not come with any added enforcement beyond existing protocol.
The change is a reversal of policy from former Comptroller Thomas Curry, who issued guidance in 2013 warning of safety and soundness risks in deposit advance products because of high fees and short repayment periods that can trap customers in debt. The Federal Deposit Insurance Corp. issued parallel guidance, and banks reacted by dropping the product almost entirely.
After President Donald Trump was elected, banking lawyer Keith Noreika became acting comptroller and rescinded the guidance to offset the effects of the Consumer Financial Protection Bureau's payday lending rule, which sought to police small-dollar lending in the financial services industry at large.
The payday rule, which has a compliance date in August 2019, will still enforce new underwriting requirements on consumer loans with maturities shorter than 45 days or longer-term loans with balloon payments. CFPB acting Director Mick Mulvaney is reviewing that rule. In a statement, Mulvaney said banks are a welcome player in the payday lending space.
"In any market, robust competition is a win for consumers," Mulvaney said.
Superregional banks have expressed interest in re-entering the space and have lobbied Congress to allow the industry to offer small-dollar loans. Fifth Third Bancorp is the only FDIC-insured institution not to have entirely shelved the product offering, and in February 2018 it began enrolling customers in a modified deposit advance product with lower fees, 3% as compared to 10% previously.
Otting said banks have expected this bulletin and have had a "60-day head start" in building new small-dollar loan offerings.
