Study Takes a Look at Alternatives to Payday Advances
The Federal Deposit Insurance Corporation (FDIC) is now accepting bankers’ applications to participate in its Affordable and Responsible Consumer Credit pilot program, which will begin in January 2008.Between 20 and 40 participants will be selected from interested institutions based on information describing their small-dollar instant payday loan programs. Applications will be accepted through November 20, 2007.The Affordable and Responsible Consumer Credit program is a two-year study designed to assist bankers by identifying information on replicable business models for affordable small-dollar loans.”Offering low-cost alternatives to high-cost payday loans can be done profitably. I would like to see reasonably priced, small dollar loans become a staple offering among depository institutions,” said FDIC Chairman Sheila C. Bair.”The results of this study will be widely shared with other institutions to help them structure and market affordable small dollar loans, which in turn will meet an obvious demand among bank customers for this type of credit product.”Key features of the pilot will include payday cash advance amounts of up to $1,000; payment periods that extend beyond a single pay cycle; annual percentage rates below 36 percent; low or no origination fees; and no prepayment penalties.Additional features to be considered include streamlined underwriting; prompt loan application processing; an automatic savings component; and access to financial education.