The Federal Deposit Insurance Corporation (FDIC) recently concluded a pilot program to get banks to compete with payday loan companies. The final results are in on the small dollar loan pilot program launched by the FDIC in 2008. The program was successful, according to the FDIC. However, bank parameters for lending were much a lot more restrictive than those offered by money lenders, which may account for the relatively small number of loans made.
Payday loan alternatives from the FDIC
In a press release, the FDIC called the payday loan option 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 comparable types of secured loans. Loan parameters integrated amounts not exceeding $2,500 for terms no less than 90 days. The annual percentage rate (APR) could not exceed 36 percent. Fees were “low” . Underwriting required proof of identity, address and income, plus a credit report that determined how much might be loaned. Mandatory checking or savings accounts and “financial education” were “optional features”. Applicants would learn whether or not they could get their loan in 24 hours if they met these needs.
FDIC small dollar plot?
Offering consumers a lot more affordable alternatives to payday loan may not are the only reason for the FDIC small dollar loan pilot program. An experiment to figure out how banks can muscle to the profitable payday loan market may have been the objective. As outlined by the FDIC, a “strategy for developing or retaining long-term relationships with consumers” was what enticed banks to participate. Mandatory accounts and financial education appears to be evidence of that strategy.
Payday loans versus the FDIC pilot program
The release may not have mentioned some aspects of the FDIC’s small dollar loan pilot program. Some loans made by banks within the program, as reported by bloggernews.net, required direct deposits, collateral or obligation fees—administrative hurdles absent with a payday loan. In two years, slightly a lot more than 30,000 loans were made by banks in the program while payday loans direct lender make about 100 million loans annually with 93 percent of borrowers paying on time
A lot more information available at these websites:
http://fdic.gov/news/news/press/2010/pr10140.html
www.bloggernews.net
