RMA Provides Vision on How Banks Can Aid Small-Dollar Borrowers

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Jan 25, 2019, 08:30 ET

PHILADELPHIA, Jan. 25, 2019 /PRNewswire/ -- The Risk Management Association (RMA) outlines how banks can play an important role in fulfilling the needs of small-dollar borrowers in a comment letter filed this week with the Federal Deposit Insurance Corporation (FDIC).

The letter suggests that more bank activity in the sector would greatly benefit customers who currently rely on payday lenders for their short-term cash needs. RMA, a financial industry association that promotes sound risk management principles, notes that the interest rates charged by a leading payday lender range from 22.2% to 46.1%.

Banks have largely retreated from small-dollar lending because of the difficulty of covering administrative costs, concerns about customers' credit history and scores, and uncertainty surrounding regulation.

The letter, which was filed in response to the FDIC's Request for Information on Small-Dollar Lending, states that smaller banks in particular do not have the expertise and resources to participate in small-dollar lending "unless they build a portfolio of sufficient size."

RMA suggests several ways banks can increase small-dollar lending in a safe and sound manner, including:

Requiring borrowers to open direct deposit accounts.
Ensuring staff has the proper expertise to manage small-dollar portfolios.
Increasing reserve levels.

To be confident about taking such a course, the letter says, banks need clearer, all-inclusive interagency guidance from the federal bank regulatory agencies addressing "the current supervisory expectations for these types of programs."

The complete comment letter can be viewed here.

About RMA
Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk management principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 2,500 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 18,000 individuals located throughout North America, Europe, Australia and Asia/Pacific.

SOURCE The Risk Management Association