Affordable, Responsible, and Feasible Small Dollar Loans: The FDIC Small Dollar Loan Pilot CFED 2010 Assets Learning Conference September 23, 2010 Rae-Ann.

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Presentation transcript:

Affordable, Responsible, and Feasible Small Dollar Loans: The FDIC Small Dollar Loan Pilot CFED 2010 Assets Learning Conference September 23, 2010 Rae-Ann Miller, Special Advisor

The Small-Dollar Loan Pilot Program In February 2008, 31 banks were selected to participate in the Small-Dollar Loan (SDL) Pilot Program. The two-year case study explored how banks can profitably offer small-dollar as an alternative to high cost credit products. Data were collected quarterly from 1Q08 through 4Q09.

FDIC Small-Dollar Loan Guidelines, June 2007 Loan amounts up to $1,000 Payment periods that extend beyond a single paycheck APRs below 36 percent Low or no origination fees No prepayment penalties Streamlined underwriting Prompt loan application processing Automatic savings component Access to financial education

Lessons Learned Defaults Comparable to General Population Dominant Program Goal: Relationship- Building Tool Programmatic Elements Linked to Success –Long-Term Board & Management Support –Engaged Champion –Location in LMI and Rural Communities

Lessons Learned Product Elements Linked to Success –Loan Terms Longer Than a Few Pay Periods –Strong, but Streamlined Underwriting Linked Savings and Financial Education –Better Loan Performance May Be Correlated –Mixed Views on Mandates

A Replicable Model for Small-Dollar Loans

Next Steps Objective: Small Dollar Loans Become a Staple Product for Mainstream Financial Institutions.

Potential Strategies to Scale Availability of Small Dollar Credit –Highlight the Facts About Existing Models –Encourage Partnerships –Embrace New Technologies and Delivery Channels –Create Guarantees –Regulatory Issues