U.S. Bank competes with payday lenders

In an attempt to encourage low-income people to use traditional banking rather than more costly alternatives such as payday lending, U.S. Bank has announced Simple Loan, a short-term, small-dollar lending program.

With Simple Loan, U.S. Bank checking account customers can borrow between $100 and $1,000, the company said. Repayment takes place over three months via three fixed payments. The loan provides access to funds with simplified pricing of $12 for every $100 borrowed with autopay from a U.S. Bank checking account, or $15 for every $100 if paid manually.

U.S. Bank was able to take this step due to regulatory changes, said Trent Wright, president and CEO of the Idaho Bankers Association. In 2017, the Consumer Finance Protection Bureau, with its final small-dollar lending rule, and the Office of the Comptroller of the Currency (OCC), by repealing its 2013 guidance on direct deposit advance loans, took steps that allowed banks to develop and expand programs to operate in the small-dollar lending space.

“Many people want and rely upon small-dollar credit, and banks, like U.S. Bank, are eager to expand their offerings of trusted and responsible services to these borrowers,” Wright said. “For years, the costs, complexity and compliance risks presented by government agencies’ rules restricted banks from meeting the small-dollar needs of their customers, which forced some bank customers to resort to more costly, less-regulated alternatives for short-term credit.”

However, both Idaho banks and banks nationwide have been slow to expand to this market. According to American Banker, banks in general were not making commitments in response to the OCC bulletin, which it attributed to “lingering skepticism about the business opportunities in the subprime market.” The Community Financial Services Association of America, an organization that represents the small-dollar lending industry, said that while it welcomed competition in the market, it thought banks would find such small loans “unprofitable and unsustainable, due to the high cost and risk of offering these products,” according to an opinion piece written by Dennis Shaul, CEO of the Alexandria, Virginia, organization.

According to a Federal Reserve study released in May 2018, about 40 percent of U.S. adults said they would not be able to cover a $400 unexpected expense, or would cover it by selling something or borrowing money.