A top bank regulator opened the door Wednesday to greater bank competition with payday lenders and check cashers by offering smaller loans for short periods of time.
The Office of the Comptroller of the Currency, the regulator responsible for regulating national banks, said Wednesday that it was encouraging banks to offer installment loans for durations of two months to a year, including for people with poor credit.
“Consumers should have more choices that are safe and affordable, and banks should be part of that solution,” said Comptroller Joseph Otting, the Trump-appointed head of the agency still in his first months.
Otting suggested that banks could serve a significant portion of the market for small loans for people with poor credit, whose alternatives include payday lending, auto loans, and other non-bank financiers.
The move is the latest shift in the landscape of federal regulation of small-dollar loans. Another agency, the Consumer Financial Protection Bureau, recently finalized a rule to regulate payday loans nationwide to prevent people from falling into “debt traps” of high cost loans. Soon after Trump appointee Mick Mulvaney took over the agency, however, he moved to reconsider the rule, and its fate is now uncertain.
On Wednesday, Mulvaney welcomed Otting’s move. “Millions of Americans desperately need access to short-term, small-dollar credit,” he said. “We cannot simply wish away that need.”
Groups critical of payday lending reacted cautiously to the announcement.
Rebecca Borné, a senior policy counsel for the Center for Responsible Lending, noted that the guidance requires that the loan terms must be “reasonable and loans must be affordable,” a guideline that would rule out loans with annual interest rates of 300 percent or higher.
