US FDIC Officials Push To Expand Small-Dollar Loan Program
By Kristina Peterson, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Officials from the U.S. Federal Deposit Insurance
Corp. Friday pushed to expand financial institutions' offerings of small-dollar
loans.
As the impact of the financial crisis migrates towards regional and community
banks, the population least able to secure credit will find it even harder to do
so, said FDIC Vice Chairman Martin Gruenberg at a conference on the under-banked
community Friday. He pointed to a pilot program the FDIC started in early 2008
with 31 banks that so far has offered $28 million in loans under $2,500.
Borrowers did not default more often than other bank customers since both
groups default around 5%, but they were more likely to be late in paying back
the loans, noted Rae-Ann Miller, special adviser to the FDIC's director of
insurance and research. The program's delinquency rate was around 9%, roughly
three times the rate for unsecured individual loans. Specifically, for loans of
$1,000 or less, it took customers an average of nine to 10 months to repay the
loan. For loans between $1,000 and $2,500, they generally required 14 to 16
months.
"Our banks are making loans to folks who have trouble making loans on time,
but are no less likely to default than the general population," Miller said.
The program's goal is to provide a sounder alternative than payday loans or
overdraft programs that deliver cash quickly but can carry high fees or interest
rates. Banks in the pilot program try to make loans available in less than 24
hours and sometimes under an hour, she said. And unlike payday lenders, the
participating banks allow customers longer than one payday cycle to repay their
loan, with no penalties if they want to pay off their balance early.
"The goal is to use the lesson of this pilot to expand substantially the
number of insured institutions in the U.S. that offer small dollar loan
products," Gruenberg said. He said his agency would encourage partnerships
between financial institutions, non-profit and community groups and local, state
and federal agencies.
Loans like these may become increasingly important as regional and community
banks get hit by the ripple effects of the financial crisis, he said.
The FDIC has already closed nearly 100 insured institutions and "expects to
close a substantial number more," he said.
-By Kristina Peterson, Dow Jones Newswires, 202-862-6619; kristina.peterson@
dowjones.com
(END) Dow Jones Newswires
10-23-091323ET
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