Do Banks Have a Future in Small-Dollar Credit?
Over a weeklong stretch last month, all six institutions offering bank payday loans discontinued the product due to pressure from federal banking regulators. The coming months will test how hard those banks are willing to fight for low income borrowers. Whatever banks offer will likely be less profitable than deposit advance. Possible replacement products like secured credit cards may fill some of the void, but many customers who used deposit advances won't qualify for secured loans. Some banks are partnering with nonbanks that already have expertise in small-dollar lending, such as LendUp, an online short-term lending startup. Mixed signals from regulators have hampered the development of new products. The FDIC and OCC issued the guidance that killed the deposit advance, but the Federal Reserve Board declined to sign on. The picture should become clearer later this year when the CFPB releases regulations which will apply both to banks and payday lenders.