The Office of the Comptroller of the Currency is encouraging banks to offer short-term, small dollar loans to subprime borrowers, according to the recent American Banker article, OCC Gives Banks Green Light to Compete with Payday Lenders.
The article states that OCC Comptroller Joseph Otting wants banks to originate loans of $300 to $5,000 to borrowers with FICO scores of 680 or below, with few other parameters beyond "sound underwriting." In doing so, the new OCC guidelines could open a $90 billion market to financial institutions.
"This product is a vehicle to help people get back into mainstream banking and get them off of high-cost financial services products of check-cashing and payday lending, with a view toward getting them into the mainstream of financial activities where they can qualify for a credit card," Otting said on a conference call with reporters.
Learn about short-term liquidity options:
Current acting CFPB Director Mick Mulvaney hailed the OCC bulletin saying, “Millions of Americans desperately need access to short-term, small-dollar credit. We cannot simply wish away that need."
The OCC's guidance has opened the doors for your bank to compete with high-cost, non-bank lenders in helping consumers meet their short-term funding needs.
"A lot of banks wanted to hear from us that we were supportive of them entering the market and doing it below historical underwriting standards," Otting said. "This is the signal that they have been looking for."