FDIC payday loan alternative program helps banks try to compete
The Federal Deposit Insurance Corporation (FDIC) just lately concluded a pilot program to get banks to compete with payday loan companies. The FDIC issued a report June 24 about the final results of the small dollar loan pilot program launched in 2008. The FDIC determined the program was successful. However, the number of loans made in two years was relatively small and the parameters for lending were more restrictive than payday loan programs.
Article source: FDIC payday loan option program helps banks make an effort to compete by Personal Money Store
FDIC payday loan alternatives
The FDIC described its payday loan alternative initiative a “Safe, affordable and feasible template for small dollar loans” in a press release. Participating banks made a lot more than 34,400 small-dollar loans, with default rates in line with default rates for similar types of quick unsecured loans. Loan parameters integrated amounts not exceeding $2,500 for terms no less than 90 days. The annual percentage rate (APR) was 36 percent or less. Fees were "low" . For underwriting, applicants needed proof of identity, an address, evidence of income and a credit report that impacted how much money the bank would loan. Mandatory checking or savings accounts and “financial education” were “optional features”. After these requirements were met, applicants would learn whether they could get their money in 24 hours.
FDIC payday loan Trojan Horse?
Offering consumers a lot more affordable alternatives to payday loan may not have been the only reason for the FDIC small dollar loan pilot program. Rather, the program was an experiment to find out how banks could make a profitable incursion into the payday loan market. Participating banks viewed the pilot program as a “strategy for developing or retaining long-term relationships with consumers” as outlined by the FDIC. Thus, the needs for opening accounts and undergoing financial education.
The FDIC pilot versus 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 direct deposits, collateral or origination fees—none of which are required for a payday loan, were required for some loans by banks in the program. In two years, slightly more than 30,000 loans were made by banks within the program while private money lenders make about 100 million loans annually with 93 percent of borrowers paying on time
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