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US Bank launches modified small-dollar loan as regulators soften tone


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US Bank launches modified small-dollar loan as regulators soften tone

U.S. Bancorp announced Sept. 10 it will offer small-dollar loans between $100 and $1,000 to US Bank NA checking account customers, as banking regulators back off from their policies of discouraging high-interest small-dollar lending. The Minneapolis-based company says the product will assist borrowers facing unexpected expenses.

Unlike traditional deposit advance products, U.S. Bank's "Simple Loan" product will have a set repayment period: three fixed payments would be made over three months. U.S. Bank said a $100 loan will have a price of $12 if scheduled with autopay from the customer's checking account. The price would rise to $15 for every $100 if the repayment is made manually.

U.S. Bank clarified that a customer can only obtain one loan at a time and will have to wait 30 days after repaying a loan before applying for a new one. "We saw this as a need we could help with by providing customers with a trustworthy, transparent loan option," Lynn Heitman, executive vice president at U.S. Bank said in a statement.

The company said it worked closely with regulators in developing the product. In May, Comptroller of the Currency Joseph Otting issued a bulletin encouraging banks to offer short-term installment loans with maturities greater than 45 days. In October 2017, the same agency reversed its stance on deposit advance products by rescinding its 2013 guidance warning of safety and soundness risks in deposit advance products that could trap customers in debt.

U.S. Bank said it worked with regulators in developing the product, adding that it tested the product with customers in 2016 and 2017. The Office of the Comptroller of the Currency confirmed that U.S. Bank shared information with the OCC as it created Simple Loan. While the OCC does not endorse specific bank products, Otting said he is "glad to see U.S. Bank and other OCC-regulated banks working to provide more responsible choices to meet the short-term, small-dollar needs of consumers."

The industry has welcomed the news. In a statement, Consumer Bankers Association President and CEO Richard Hunt said banks entering the space will take market share away from "costly, less regulated lenders."

U.S. Bank, along with Regions Financial Corp., were both large players in the small-dollar space prior to the 2013 guidance. As regulators and Congress contemplated opening up the business line to banks, both companies expressed interest in re-entering the space.

Fifth Third Bancorp, another superregional bank with a history of small-dollar products, moved in February to introduce a modified deposit advance product with lower fees and a 45-day repayment deadline.

Regions Financial spokesperson Evelyn Mitchell said the company is considering its options for serving its customers, which "includes small-dollar lending and product lines where industry solutions are evolving."