FDIC Should Promote Loans that Work

Federal regulators started pushing large banks to offer small-dollar loans to customers as an alternative to payday loans last year. A Bloomberg BGov article yesterday quotes analysts and large banking institutions saying, essentially that while they want to help consumers, the financial institutions aren’t equipped to deal with the costs associated with underwriting, servicing and marketing small-dollar products for smaller amounts of credit.

While the Federal Deposit Insurance Corporation (FDIC) may be pushing banks to offer smaller-dollar products, the regulators seem to ignore the fact that these products are already offered at competitive rates with clear underwriting to consumers every day.  Traditional installment lenders have for more than a century – longer than the existence of many banks combined – offered simple small-dollar loan products to consumers. Traditional installment lenders have been a presence on Main Streets across the nation in towns big and small, offering loans for emergencies, but also for those moments where consumers and their families are confident enough to seek taking advantage of economic opportunity when it’s available to them. Many traditional-installment lenders have served three and four generations of consumers, helping communities build and grow and bring high-quality jobs and economic growth to cities and towns.

Instead of whip-sawing banks to offer products they do not or cannot offer, the FDIC should promote traditional installment loans and the financial institutions that offer them as an alternative to payday-type products. A track record of more than a century has demonstrated the value offered by traditional installment loans for consumers and their communities.