A pilot program intended for banks to provide alternatives to payday loans has been developed by the Federal Deposit Insurance Corporation (FDIC. The final results of the small dollar loan pilot program began in 2008 were released by the FDIC in a report June 24. The program was deemed a success. However, the number of loans made in two years was relatively small and the parameters for lending were a lot more restrictive than payday loan programs.
Source for this article: FDIC payday loan choice program helps banks try to compete by Personal Money Store
FDIC payday loan alternatives
The FDIC described its payday loan choice initiative a "Safe, affordable and feasible template for small dollar loans" in a press release. Banks within the program reported making a lot more than 34,400 small-dollar loans and experienced default rates considered normal for that type of unsecured loan. Loan parameters incorporated 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” . Proof of identity, address, income and a credit report used to determine loan limits was required for underwriting. 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 requirements.
Trojan Horse – FDIC small dollars
It could possibly be argued that the FDIC small dollar loan pilot program’s main objective was not to offer consumers more affordable alternatives to payday loans. A feasibility study for carving out a foothold for profits within the payday loan market might be the true objective. According to the FDIC, a “strategy for developing or retaining long-term relationships with consumers” was what enticed banks to participate. Mandatory accounts and financial education seems to be evidence of that strategy.
FDIC pilot vs. payday loans
There may are some aspects of the FDIC’s small dollar loan pilot program not mentioned in the release. Bloggernews.net reports that some loans made by banks within the pilot required direct deposits, collateral or origination fees — none of which are required for a payday loan. In two years, slightly more than 30,000 loans were made by banks in the program while private money lenders make about 100 million loans annually with 93 percent of borrowers paying on time
More info available at these sites:
http://fdic.gov/news/news/press/2010/pr10140.html
www.bloggernews.net
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