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From Banking and Finance Law Daily, May 23, 2018

Comptroller encourages banks to offer responsible short-term, small-dollar installment loans

By Thomas G. Wolfe, J.D.

The Office of the Comptroller of the Currency has issued a bulletin on "Core Lending Principles for Short-Term, Small-Dollar Installment Lending." Encouraging national banks and savings institutions to responsibly offer these types of loans to meet the credit needs of their customers, Comptroller Joseph Otting remarked that "[m]illions of U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans typically ranging from $300 to $5,000 to make ends meet. Consumers should have more choices that are safe and affordable, and banks should be part of that solution."

OCC bulletin. The May 23, 2018, bulletin on installment lending (OCC Bulletin 2018-14) outlines three core lending principles that banks should take into account when offering short-term, small-dollar installment lending products:

  1. All bank products should: be consistent with safe and sound banking; treat customers fairly; and comply with applicable laws and regulations.
  2. Banks should effectively manage the risks associated with the products they offer, including credit, operational, compliance, and reputation risks.
  3. All credit products should be underwritten based on reasonable policies and practices, including guidelines governing the amounts borrowed, frequency of borrowing, and repayment requirements.

Coordination with CFPB. As observed in the bulletin, in January 2018, the Consumer Financial Protection Bureau communicated that it "intends to engage in a rulemaking process to reconsider the Payday Rule but did not indicate the specific changes that it is considering." Along these lines, the OCC intends to work with the Bureau and other stakeholders to ensure that the "OCC-supervised banks can responsibly engage in consumer lending, including lending products covered by the Payday Rule."Similarly, the OCC bulletin outlines "reasonable policies and practices" that financial institutions should follow when offering these types of installment loans. Accordingly, the bulletin provides some general guidance on loan amounts, pricing, repayment, underwriting, marketing, consumer disclosures, servicing, credit reporting, and so forth.

Commenting on the OCC’s bulletin on installment lending, CFPB Acting Director Mick Mulvaney applauded Comptroller Otting’s effort to encourage national banks and federal savings associations to offer responsible short-term, small-dollar installment loans. Asserting that millions of Americans "desperately need access to short-term, small-dollar credit," Mulvaney commented, "In any market, robust competition is a win for consumers. The Bureau will strive to expand consumer choice, and I look forward to working with the OCC and other partners on efforts to promote access and innovation in the consumer credit marketplace."

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