More on the FDIC Small Dollar Loan Pilot Program
March 6, 2009 | alternatives, industry | Comments (4)We have been keeping a close eye on the FDIC pilot program and here is what we know so far.
A little background…In October 2007, the FDIC launched the Affordable and Responsible Consumer Credit pilot program, a two-year study designed to develop model payday lending alternatives and see if banks can profitably offer small-dollar loans. Key requirements of the pilot include: loan amounts of up to $1,000; payment periods that extend beyond a single pay cycle; annual percentage rates below 36 percent; low or no origination fees; and no prepayment penalties. Additional considerations include: streamlined underwriting; prompt loan application processing; an automatic savings component; and access to financial education. Participating financial institutions can receive favorable consideration under the Community Reinvestment Act (CRA).
And the results so far…
- In the first quarter of 2008, the banks issued 3,140 loans, 1,535 of which were for less than $1,000. The average term was 10 months with a 15.05 annual percentage rate.
- The products being offered come with a variety of restrictions, different terms and different fee structures than payday loans.
- Of 30 participating banks, many are breaking-even or losing money.
- In almost all cases, the 36% APR does not include application fees (range from $18 to $61.50), annual fees and/or fees for required financial literacy classes.
- A majority of the banks require direct deposit, credit checks and many require a credit check, financial literacy class or collateral in order to qualify for the product.
- Only 5 of the 30 can approve loan in less than 24 hours.
Comments»
If there are other fees besides the stated interest then the loan isn’t at 36% APR, is it?
Does anyone know how much of the taxpayers money has been spent per loan on the 3,140 loans?
Wouldn’t it be nice if that money were spent on the businesses that customers prefer to patronize instead of trying to lure them into businesses they disdain.
Let’s not get into how our tax money is being spent. I have read that hospitals and schools are closing while we are handing AIG, Citigroup, Bank of America, and everybody else BILLIONS. Of course, it is more important to sustain the system of wealth management for the ‘investor class’ than to ensure the well being of the general public.
We live in America. If you don’t have money, you don’t matter. Why is anyone surprised?
The reason AIG is being bailed out is because they administer the pensions for members of congress and government. It is okay for the rest of us to lose our businesses, jobs, pensions, 401k’s and IRA’s but God Forbid Congress feels the pain also.