Last week, the Office of the Comptroller of the Currency (OCC) released a new bulletin outlining steps for banks to offer short-term loans to customers. The overall goal of the policy change is to increase credit options for those consumers with FICO scores of 680 or below, who have limited access to loans.
Highlights include:
–The bulletin does not set forth a change in law, but rather just signals that the OCC encourages its regulated institutions to consider getting into the small-dollar lending business.  This is a natural policy progression given the OCC’s prior rescission of its deposit advance products guidance
Stresses the need for short-term small-dollar loans recognizing that they require higher interest rates.
–Calls the small-dollar loans an “important space” and a “large market” that banks cannot fully serve.
–The bulletin is structured to not apply to loans that are subject to the CFPB Bureau’s small dollar rule applying to loans of typically 2 to 12 months with equal amortizing payments.  The bulletin indicates that the OCC intends to work with the CFPB to provide input on the future of the small dollar rule.
The OCC policy advises banks to structure short-term loans to be paid within a reasonable timeframe, comply with consumer protection laws, and employ “timely and reasonable workout strategies” to avoid cyclical debt and excessive fees. The agency also urged banks to provide information about the loans “in a transparent, accurate, and customer-friendly manner.”
One important outcome from the bulletin will be to open the door for greater bank/fintech partnerships in the area.