CFPB Small Dollar Loan Rulemaking

Position

  • Any new rule on small-dollar lending must not be so broad and indiscriminate that it inadvertently forces community banks out of the small-dollar loan market.
  • Efforts to protect consumers from abusive lending practices should not prohibit responsible community banks from making small-dollar loans to meet the diverse needs of their customers.
  • The CFPB must recognize the stark differences between lenders that abuse consumers and the highly- regulated community banking industry.
  • ICBA strongly urges the CFPB to use its authority under Dodd-Frank to tailor regulations to exempt community banks from any final rule or provide a de minimis exemption for lenders – including community banks – that make 2,500 or fewer covered loans per year and derive 10 percent or less of their revenue from those loans.
  • Any final rule must provide a clear path for community banks to continue making personal loans without new and undue regulatory burden.

Background

The CFPB is conducting a rulemaking covering payday, vehicle title, and similar loans because it has serious concerns that lender practices in these markets are causing substantial harm to consumers. Community banks offer, underwrite, and service small-dollar loans on terms that work for them and their customers and additional rules with arbitrary underwriting requirements will likely have a significant negative impact on the availability of community bank small-dollar credit.

Community banks do not engage in abusive lending practices, such as steering consumers to unaffordable loan products. Community banks also have close relationships with their customers and, consequently, are familiar with their financial condition, history and ability to repay loans. It would be extremely detrimental to consumers if community banks were forced from the small-dollar loan marketplace by onerous new regulations. If community banks are regulated out of this market, ICBA is very concerned that consumers would have to resort to unregulated and unlicensed predatory lenders. The CFPB’s final rule must ensure that community banks have the needed flexibility to continue making character and relationship-based personal loans.

Staff Contacts: Joe Gormley and Lilly Thomas