Payday Loan Alternatives

On April 1st at the 2014 National Interagency Community Reinvestment Conference, Comptroller Thomas Curry delivered remarks to all attendees. He began his remarks by identifying key objectives in the interagency’s effort to update and modernize the CRA process by aligning the agencies’ approaches to CRA evaluations, improving evaluation procedures, and providing effective training that prepares examiners to develop well-supported CRA evaluations.

Next, he discussed an issue that has received a lot of focus and concerns with the OCC, high cost payday loans. In 2000, the OCC issued an advisory letter to banks warning about the compliance, legal, and reputation risk associated with payday lending. While the Comptroller applauded banks for providing loan products to consumers with strong credit histories; he defended his agency’s guidance on deposit advance products and stated that “properly managed small-dollar loan programs do not exhibit the same level of risks we identified with deposit advance products, and that such loans can be made available to consumers.” He added that they understand the challenges presented by small-dollar consumer lending. Specifically, banks have told the OCC that the underwriting processes need to be streamlined to make such products viable. However, the OCC determined that many of the risks identified with regard to deposit advance guidance, including the product’s short-term balloon payment feature, were specific to that product. He encouraged banks to offer small-dollar loan products with reasonable loan terms that can put consumers on a path toward a brighter credit future. In addition, he believes such programs can :

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  • be offered at a low cost to banks;
  • help build a banks’ reputation;
  • expand existing customer relationships; and
  • potentially be elegible for positive CRA consideration.

In closing the Comptroller reiterated the OCC’s commitment to helping consumers by encouraging banks to offer reasonable loan products in a safe, sound, and responsible manner. “Properly structured small-dollar loans can offer borrowers a safe and affordable path, as opposed to high-cost loans that can lead to a cycle of debt. When consumers are able to reduce their dependence on short-term financial expedients, they benefit, banks benefit, and the economy benefits.”

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