This week, LenderLaw Watch is covering developments related to small loans in response to the COVID-19 crisis.
Each year, the Board of Governors of the Federal Reserve System (Federal Reserve) conducts its survey of household economics and decision-making, asking households across the country questions related to financial well-being and security. . According to May 2019 survey, about 40% of U.S. households would struggle with a small financial disruption: three in ten respondents said they should borrow or sell something when faced with an unexpected expense or hypothetical $ 400 emergency, and 12% of survey respondents would be unable to pay the expense. This year, many Americans are facing unexpected financial deficits far worse than those predicted by the survey hypothesis.
Recognizing the financial impact that the COVID-19 crisis will have on households, regulators last month released several statements encouraging banks and other financial institutions to meet the financial needs of consumers affected by the pandemic, including by offering loans of small amount.
On March 9, 2020, the Federal Reserve, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC), as well as the Conference of State Bank Supervisors, issued a Press release encourage financial institutions to “meet the financial needs of customers” affected by the coronavirus. The Federal Reserve also urged financial institutions to review its 2013 Supervision and Regulatory Letter, “Supervisory practices for banking organizations and their borrowers and other customers affected by a major disaster or emergencyWhich advised financial institutions on specific efforts they should consider during a major disaster, including “[e]credit terms for new loans.
On March 19, the Federal Reserve, FDIC, and OCC issued a Joint Statement on the Review of the Community Reinvestment Act for COVID-19 Response Activities recognizing the possible negative financial impact of COVID-19 and once again encouraging financial institutions to work with consumers affected by COVID-19. The joint statement informed financial institutions that agencies would “favorably consider” retail banking and lending activities that meet the needs of low and moderate income people affected by the virus as long as they remain compliant with protection laws. consumers, such as “[e]expand the availability of other short-term and unsecured credit products for creditworthy borrowers. The joint statement stressed that “cautious efforts to change the terms of new or existing loans for low and moderate income clients, small businesses and small farms will be considered by the ARC and will not be submitted. to the critics of the examiners “.
The joint statement also clarified that since the official declaration of a national emergency, financial institutions will receive consideration from ARC for community development activities such as, among others:
- Loans, investments or services that support digital access for low and moderate income people or communities; and
- Loans, investments or services that support access to health care, especially for low and moderate income individuals or communities.
The joint declaration is effective for the period of six months after the lifting of the national emergency declaration.
In accordance with these statements, on March 26, 2020, the Federal Reserve, CFPB, FDIC, NCUA and OCC issued another statement – Joint statement encouraging responsible small dollar lending in response to COVID-19. The statement encourages banks, savings associations and credit unions to offer low-value loans to consumers and small businesses, recognizing unforeseen expenses and shortfalls that can arise during the COVID-19 crisis . The joint statement observed that appropriately structured open-ended lines of credit, closed installment loans or single payment loans could be offered in accordance with applicable regulations and consumer protection laws. In a footnote, the joint statement noted that financial institutions “may, but are not required to” consult with regulators about the low dollar lending products they intend to offer to financial institutions. consumers affected by the pandemic.
These statements are consistent with the abandonment by federal agencies in recent years of the Obama administration’s policy of restricting access to small dollar loans. See here for LenderLaw Watch’s previous coverage of the CFPB’s changing position on payday loans and its payday loan rule.
In response to the pandemic, financial institutions began to take steps to meet the financial needs of consumers during the crisis, possibly as a result of these directions. For example, the US bank implemented temporary adjustments for short-term small dollar loans by reducing the price of straightforward US bank loans to $ 6 per $ 100 borrowed (from $ 12 for automatic payment and $ 15 $ for manual payment) and reducing the APR to 2.99% on U.S. Bank Personal Loans up to $ 4,999 for up to 48 months, and Marcus of Goldman Sachs allows personal loan payment deferral for one month without interest charged during the deferral for borrowers affected by COVID-19.