Piloting Small-Dollar Loans
Good news for: CA, DE, FL, GA, IL, KS, KY, LA, MA, MN, MO, NE, OK, SD, TX, WI
"In 2008, the Federal Deposit Insurance Corporation (FDIC) kicked off a two-year Small-Dollar Loan Pilot Program. The pilot program will identify effective and replicable business practices to help banks incorporate affordable small-dollar loans into their other mainstream banking services. The pilot program is testing whether financial institutions can make a profit and assist their customers by offering an alternative to payday loans and fee-based overdraft protection programs. Thirty-one banks have been selected to participate in the pilot program. The participating banks have general guidelines to follow, including:
- Loan amounts of up to $1,000
- Annual percentage rates (APRs) below 36 percent
- Payment periods that extend beyond a single paycheck cycle
- Low or no origination fees
- No prepayment penalties
- Prompt loan application processing
- Automatic savings component
- Access to financial education
For the first quarter of the pilot program, 20 banks originated more than 1,500 loans of $1,000 or less, with a combined principal of approximately $1 million. The average loan size was $678, the average interest rate was 15.1 percent and the average loan term was 10 months.
The FDIC has published an article summarizing the pilot program and the first quarter results that is available through its FDIC Quarterly"
excerpted from:
http://www.ncsl.org/standcomm/sccomfc/summer08.htm
