Health insurance coverage

New GAO report examines small dollar loan market

A new report from the US Government Accountability Office (GAO) has found that regulatory uncertainty surrounding small-value loans is preventing banks from offering these products.

© Shutterstock

The report examined the impact of regulatory actions related to small dollar loans from the Consumer Financial Protection Bureau (CFPB), the Federal Reserve, the Federal Deposit Insurance Corporate (FDIC) and the Office of the Comptroller of the Currency (OCC) from 2010 to 2020. More than 19 actions have been taken by these four regulators over the past decade, resulting in increased uncertainty for banks, according to the GAO report.

“In particular, some market participants and observers have noted that banks are unwilling to offer low-dollar products because they are expensive to develop, and regulations or supervisory expectations may change,” the report said.

Specifically, the GAO report highlighted the impact of oversight guidelines issued by the OCC and FDIC in 2013 on deposit advance products. He also said that more recent efforts to encourage financial institutions to develop such products have only generated more uncertainty and hesitation for banks.

“Despite these actions by regulators, some market participants and observers have said regulatory uncertainty persists among banks. […] Some market participants and observers […]including four banks, were concerned that the current guidelines would provide banks with clear guidance that would protect them from regulatory risk,” the report said.

The GAO report was commissioned by US Sens. Gary Peters (D-MI) and Mike Rounds (R-SD). The Consumer Bankers Association said excessive regulation stifles innovation and product development.

“When 6 in 10 Americans cannot afford an unexpected $1,000 expense, many hard-working families rely on short-term liquidity products to meet an emergency need. Unfortunately, too much regulatory pressure has forced banks out of this market and consumers to meet their needs with payday lenders and other less regulated venues. The ABC appreciates that the GAO has reaffirmed its longstanding position on this issue and will continue to advocate with policymakers to implement the necessary policy changes aimed at protecting consumers’ access to affordable credit. said CBA President and CEO Richard Hunt.