All five federal bank and credit union regulators on Thursday called on the financial firms they regulate to offer short-term loans to customers facing hardships during the coronavirus pandemic.
The Federal Reserve Board of Governors, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC) and National Credit Union Administration issued joint guidance Thursday to “encourage financial institutions to offer responsible small-dollar loans to both consumers and small businesses.”
“The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries,” the statement reads.
The guidance amounts to a regulatory green light for banks and credit unions to re-enter the small-dollar lending space after largely abandoning it to payday lenders after the financial crisis.
The OCC in 2018 replaced a 2013 legal bulletin advising banks against small-dollar lending with new guidelines for how depository firms could safely issue short-term loans with higher than average interest rates. The memo followed a 2017 CFPB rule severely restricting payday lending that was hollowed out by the agency’s new director in 2019.
The guidance issued Thursday is the latest effort from federal regulators to settle potential legal concerns from banks and credit unions seeking to help customers weather the pandemic.
Millions of Americans have lost their jobs as businesses across the country shutter to slow the spread of the coronavirus, forcing thousands of firms to the brink of bankruptcy. Banks and financial institutions have sought to help customers facing joblessness or financial hardship with loan forbearance and other forms of relief.
Labor Department data released Thursday showed unemployment claims skyrocketing to more than 3 million in the past week.