| With millions of U.S. consumers borrowing nearly $90 billion every year from payday lenders, U.S. Comptroller of the Currency Joseph Otting is encouraging traditional financial institutions to offer responsible short-term, small-dollar installment loans.
Payday loans are short-term, high-rate unsecured personal loans typically ranging from $3,000 to $5,000. Since these loans are short-term, they can average annual percentage rates of over 500 percent.
“Banks can provide affordable short-term, small-dollar installment lending options that help consumers, including consumers with weaker credit histories who have the ability to repay,” Otting said in a statement. “Bank-offered products can help lead consumers to more mainstream financial services without trapping them in cycles of debt. When banks offer products with reasonable pricing and repayment terms, consumers also benefit from other services that banks regularly provide, such as financial education and credit reporting.
By participating in this important space, banks increase the supply and choices available to consumers, which can reduce borrowing costs and have other beneficial market effects.
Banks may not be able to serve all of this large market, but they can reach a significant portion of it and bring additional options and more competition to the marketplace while delivering safe, fair and affordable products that promote the long-term financial goals of their customers.
