Agencies Issue Small-Dollar Lending Principles

John Zasada, Compliance Consulting Director, Financial Institutions Group

On May 20, 2020, the federal financial institution agencies (the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency) issued joint lending principles for providing small-dollar loans to consumers in a responsible manner. Extraordinary circumstances, such as those being experienced now due to the pandemic, present an opportunity for financial institutions to offer small-dollar loans to consumers in order to address cash-flow imbalances and income shortfalls. The four-page joint lending principles document provides characteristics for responsible small-dollar loan programs. The document also provides the following three core lending principles for small-dollar loan products:

• Loan products are consistent with safe and sound banking, treat customers fairly, and comply with applicable laws and regulations.
• Financial institutions effectively manage the risks associated with the products they offer, including credit, operational and compliance.
• Loan products are underwritten based on prudent policies and practices governing the amounts borrowed, frequency of borrowing and repayment requirements.

In developing effective loan policies and risk management practices for small-dollar lending, the agencies expect them to address loan structures, pricing, underwriting, marketing, disclosures, servicing and safeguards.

For more information on small-dollar lending compliance, contact Doeren Mayhew’s compliance specialist.