Financial regulators encourage small-dollar lending amid coronavirus crisis; more guidance, lending principles to come

Banks, savings associations, and credit unions were urged in a statement by regulators Thursday to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19, the illness caused by the novel coronavirus.

The agencies are also working on future guidance and lending principles “for responsible small-dollar loans to facilitate the ability of banks, credit unions, and saving associations to more effectively meet the ongoing credit needs of their customers, members, and communities,” according to the statement issued jointly by the Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board, Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NCUA), and Consumer Financial Protection Bureau (CFPB).

The agencies said responsible small-dollar loans can play an important role in meeting customers’ credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries. “Such loans can be offered through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans,” they said.

Loans should be offered “in a manner that provides fair treatment of consumers, complies with applicable laws and regulations, and is consistent with safe and sound practices,” they urged. For borrowers who experience unexpected circumstances and cannot repay a loan as structured, “banks, savings associations and credit unions are further encouraged to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow,” they said.

The statement reiterates previous actions responding to the crisis, including a joint statement by banking regulators that they will favorably consider retail banking and lending activities that meet the needs of affected low- and moderate-income individuals, small businesses, and small farms for Community Reinvestment Act purposes that are consistent with safe and sound banking practices and applicable laws, including consumer protection laws. “This statement noted such activities could include offering short-term, unsecured credit products for creditworthy borrowers,” the agencies said Thursday.

The NCUA on Thursday issued a Letter to Credit Unions transmitting this joint statement to supervised institutions.

Federal agencies encourage banks, savings associations and credit unions to offer responsible small-dollar loans to consumers and small businesses affected by COVID-19

NCUA Letter to Credit Unions