FDIC and OCC Guidance Aims to End Predatory Small-Dollar Loans
Making good on their promises to protect consumers from predatory lending and abuse in the wake of the recession, government agencies are cracking down on payday loans. This week, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) released new guidance over the lending of payday-type products offered by the financial institutions under their oversight.
With this new FDIC and OCC action, harmfully designed and largely unregulated loan products commonly aimed at low-income communities can no longer be offered by banks. With features such as triple-digit interest rates, no certification of borrowers’ ability to repay, and automatic repayments deducted immediately from a borrower’s next paycheck, these loans trap borrowers in a cycle of debt and poverty.
These lending products are not a responsible answer to our community’s financial stagnation. Latinos are looking for responsible ways to maximize their hard-earned income, build credit, and put away savings, and affordable small-dollar lending products can and should be part of the solution. Offering products with exorbitant rates that eat away at Latinos’ future paychecks does nothing to increase our community’s financial capability.
NCLR is pleased with the new guidance from the FDIC and OCC and hope that financial institutions will more carefully evaluate the full financial impact of their products. We also hope this announcement will spur the banking industry to create innovative and affordable small-dollar lending products that adequately meet the financial needs of low-income consumers.
With these announcements coming the same week that the Consumer Financial Protection Bureau (CFPB) took its first action against a payday loan company—Cash America—we hope these actions mark a shift away from harmful products and toward responsible lending by banks and nonbanks alike.
Millions of financially struggling Latinos and other U.S. households are eager to get on solid financial footing, and we must ensure that they have the right tools to do so. Instead of investing in risky financial products that only offer short-term solutions, the industry should focus on responsible products that truly help their customers achieve financial stability in the long run.
