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February 15, 2018
Pew brief notes benefits of CUs offering small-dollar loan programs
A brief from Pew Charitable Trusts supports credit unions and banks offering small-dollar loan programs as they would provide "a far better option for Americans" by saving consumers billions of dollars annually.
The brief notes that Americans currently spend more than $30 billion annually on small-dollar loans – from payday, auto title, pawn, rent-to-own and other lenders outside of credit unions and banks. It goes on to detail the necessary regulatory steps that would need to take place for credit unions and banks to begin competing with other small-dollar lenders and some guidelines for these entities to follow as they develop new small-dollar loan programs.
"Millions of households could benefit if banks and credit unions were to offer small installment loans and lines of credit with standards strong enough to protect consumers, clear enough to avoid confusion or abuse, and streamlined enough to enable automated low-cost origination," the brief states.
While some credit unions and community banks already do offer some small-dollar loans and lines of credit, including through the NCUA's payday-alternative loan (PAL) program, the brief says these programs "have not achieved a scale to rival the 100 million or so payday loans issued annually—let alone the rest of the nonbank small-dollar loan market."
NAFCU has already been working with stakeholders on this issue. Last year, the association hosted a small-dollar lending working group discussion with representatives from several NAFCU-member credit unions, Pew Research Center, Center for Financial Services Innovation and Filene Research Institute to discuss credit unions' ability to provide members' needs for affordable, safe loans.
"Credit unions – as member-owned, cooperatives – offer a wide range of financial products and services, including loans specifically designed to aid members who have fallen victim to predatory payday lenders," said NAFCU Director of Regulatory Affairs Alexander Monterrubio. "NAFCU has worked closely with Pew, the CFPB and NCUA on this issue. We are supportive of opportunities that allow credit unions to offer more options to their membership base, including responsible small-dollar lending options.
"Loan offerings are determined based on the needs of a credit union's membership – so adoption will vary by credit union," he added.
The brief notes that Americans currently spend more than $30 billion annually on small-dollar loans – from payday, auto title, pawn, rent-to-own and other lenders outside of credit unions and banks. It goes on to detail the necessary regulatory steps that would need to take place for credit unions and banks to begin competing with other small-dollar lenders and some guidelines for these entities to follow as they develop new small-dollar loan programs.
"Millions of households could benefit if banks and credit unions were to offer small installment loans and lines of credit with standards strong enough to protect consumers, clear enough to avoid confusion or abuse, and streamlined enough to enable automated low-cost origination," the brief states.
While some credit unions and community banks already do offer some small-dollar loans and lines of credit, including through the NCUA's payday-alternative loan (PAL) program, the brief says these programs "have not achieved a scale to rival the 100 million or so payday loans issued annually—let alone the rest of the nonbank small-dollar loan market."
NAFCU has already been working with stakeholders on this issue. Last year, the association hosted a small-dollar lending working group discussion with representatives from several NAFCU-member credit unions, Pew Research Center, Center for Financial Services Innovation and Filene Research Institute to discuss credit unions' ability to provide members' needs for affordable, safe loans.
"Credit unions – as member-owned, cooperatives – offer a wide range of financial products and services, including loans specifically designed to aid members who have fallen victim to predatory payday lenders," said NAFCU Director of Regulatory Affairs Alexander Monterrubio. "NAFCU has worked closely with Pew, the CFPB and NCUA on this issue. We are supportive of opportunities that allow credit unions to offer more options to their membership base, including responsible small-dollar lending options.
"Loan offerings are determined based on the needs of a credit union's membership – so adoption will vary by credit union," he added.
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