The Office of the Comptroller of the Currency (OCC), which is part of the U.S. Department of Treasury, has taken a big step forward in encouraging the lenders they supervise to feel free to get into the payday loan business.
More importantly the lenders are encouraged to lend to folks they otherwise would not have and report all activity to the credit bureaus which can help build credit scores.
The communication the OCC sent out to all National Banks and Federal Savings Associations said, “The Office of the Comptroller of the Currency (OCC) encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers. The OCC is issuing this bulletin to remind banks of the core lending principles for prudently managing the risks associated with offering short-term, small-dollar installment lending programs. Banks should develop and implement these programs in a manner consistent with sound risk management practices and should align the programs with the banks’ overall business plans and strategies. Such strategies could include working with consumers who have an ability to repay a loan despite a credit profile that is outside of a bank’s typical underwriting standards for credit scores and repayment ratios. In all programs, banks should offer lending products in a manner that ensures fair access to financial services and fair treatment of consumers and complies with applicable laws and regulations. This bulletin is consistent with the OCC’s support for responsible innovation by banks to meet the evolving needs of consumers, businesses, and communities.” – Source
Getting a payday loan from a bank offers consumers access to similar products with a friendlier collection process and hopefully more underwriting to determine consumer ability to repay.
In fact the OCC says:
- Loan amounts and repayment terms that align with eligibility and underwriting criteria and that promote fair treatment and access of applicants. Product structures should support borrower affordability and successful repayment of principal and interest in a reasonable time frame.
- Loan pricing that complies with applicable state laws and reflects overall returns reasonably related to product risks and costs. The OCC views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).
- Analysis that uses internal and external data sources, including deposit activity, to assess a consumer’s creditworthiness and to effectively manage credit risk. Such analysis could facilitate sound underwriting for credit offered to consumers who have the ability to repay but who do not meet traditional standards.
- Marketing and customer disclosures that comply with consumer protection laws and regulations and provide information in a transparent, accurate, and customer-friendly manner.
- Loan servicing processes that assist customers, including distressed borrowers. To avoid continuous cycles of debt and costs disproportionate to the amounts borrowed, timely and reasonable workout strategies should be used.
- Timely reporting of a borrower’s repayment activities to credit bureaus. Borrowers should have the ability to demonstrate positive credit behavior, build credit history or rebuild credit scores, and transition into additional mainstream financial products.
Time will tell but it is nice to give consumers an opportunity to deal with an OCC regulated financial institution for this banking product.