WASHINGTON—The Trump Administration said it is taking steps to encourage banks to make more short-term loans.
Calling the small loan market a “big market…that is going unfulfilled,” Comptroller of the Currency Joseph Otting told the Wall Street Journal, “When you don’t have an alternative in that space, what happens is people have a tendency to fall to the lowest common denominator,” such as check-cashers, pawnshops and liquor stores, he said.
The Journal noted the move by the Trump Administration is a shift from the Obama administration’s efforts to push banks to scrap their short-term lending programs, which were viewed suspiciously due to concerns over high interest rates and perceived repayment risks.
Otting told the Journal, however, that the Office of the Comptroller of the Currency, which oversees national banks, will “clarify” its position on installment loans that can help consumers with immediate cash needs such as buying “a piece of equipment [or] a family emergency.”
According to the OCC, an announcement is expected within the next two months and will focus on 45-to-90-day loans rather than payday loans.
The Journal cited banks as saying small-dollar consumer loans are difficult to make on a large scale, because the underwriting process is too costly given the small profit they make on each loan. “You have a very small opportunity to cover your costs,” Wayne Abernathy, executive vice president of financial-institutions policy and regulatory affairs at the American Bankers Association told the Wall Street Journal.
Among the changes Abernathy told the Journal would make a difference would be the easing of underwriting expectations to allow banks to rely more on a borrower’s financial history, rather than a full credit check, to evaluate risk.
The OCC announcement comes at the same time the Consumer Financial Protection Bureau is also re-evaluating a 2017 rule that would impose ability-to-repay standards on payday loans, including those made by banks.
Consumer groups expressed concerns to the Journal that new attitudes by regulators could allow predatory lenders to expand to more consumers. The groups want loan APRs capped at 36%.