The Federal Deposit Insurance Corporation (FDIC) lately concluded a pilot program to get banks to compete with payday loan companies. The final results of the small dollar loan pilot program began in 2008 were released by the FDIC in a report June 24. The FDIC determined the program was successful. However, the number of loans made in two years was relatively small and also the parameters for lending were a lot more restrictive than payday loan programs.
FDIC payday loan alternatives
In a press release, the FDIC called the payday loan alternative program a “Safe, affordable and feasible template for small dollar loans”. Participating banks made a lot more than 34,400 small-dollar loans, with default rates in line with default rates for similar types of short term loans. Parameters incorporated a loan amount of $2,500 or less for terms of 90 days or a lot more. The annual percentage rate (APR) could not exceed 36 percent. Fees also had to be “low”. Proof of identity, address, income and a credit report used to determine loan limits was required for underwriting. Features listed as “optional” incorporated “financial education” and mandatory checking or savings accounts. Whether or not applicants could get their money was not certain until at least 24 hours after these needs were met.
Small dollars big money for banks?
It might be argued the FDIC small dollar loan pilot program’s main objective wasn’t to offer consumers a lot more affordable alternatives to payday loans. Rather, the program was an experiment to discover out how banks could make a profitable incursion to the payday loan market. According to the FDIC, a “strategy for developing or retaining long-term relationships with consumers” was what enticed banks to participate. Thus, the requirements for opening accounts and undergoing financial education.
FDIC pilot vs. payday loans
There may have been some aspects of the FDIC’s small dollar loan pilot program not mentioned in the release. Some loans made by banks in the program, as reported by bloggernews.net, required direct deposits, collateral or obligation fees—administrative hurdles absent with a payday loan. While a lot more than 30,000 loans were made by 28 banks in two years, pay day lenders make about 100 million loans annually with 93 percent of all loans paid back on time
A lot more info about this topic at these websites:
http://fdic.gov/news/news/press/2010/pr10140.html
www.bloggernews.net
