The federal financial regulatory agencies are encouraging banks, savings associations and credit unions to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19.

The regulators said in a joint statement on March 26 that responsible small-dollar loans can play an important role in meeting customers’ credit needs resulting from temporary cash-flow imbalances, unexpected expenses or income disruptions during periods of economic stress or disaster recoveries.

The Federal Reserve Board of Governors, Consumer Financial Protection Bureau, FDIC, National Credit Union Administration and Office of the Comptroller of the Currency said such loans can be offered through a variety of structures, including open-end lines of credit, closed-end installment loans or appropriately structured single payment loans.

The agencies said loans should be offered in a manner that provides fair treatment of consumers, complies with applicable laws and regulations and is consistent with safe and sound practices.

The agencies also encouraged these financial institutions to work with borrowers who experience unexpected circumstances and cannot repay a loan as structured, instead designing strategies to help borrowers repay the principal of the loan while mitigating the need to re-borrow.

The agencies have made several joint statements this month, including one on March 19 informing institutions that the agencies will favorably consider retail banking and lending activities that meet the needs of affected low- and moderate-income individuals, small businesses and small farms for Community Reinvestment Act purposes.

The agencies also plan to provide future guidance and lending principles for small-dollar loans so banks, credit unions and saving associations can more effectively meet the ongoing credit needs of their customers, members and communities.

Regulatory concerns kept many institutions from offering small-dollar lending following the last financial crisis, opening up opportunities for high-interest payday lenders.