Recent columns in American Banker have discussed important questions about affordable small dollar credit. Consideration of these issues will be most productive when informed by the best available data. Consequently, the Federal Deposit Insurance Corp. would like to clarify some of the FDIC data cited in those articles.
One column ("Forget Payday, It's Time to Reinvent All Lending Practices," Feb. 18) implied that the increase in unbanked and underbanked households is driven by households that recently left the financial mainstream. This conclusion is not wholly consistent with FDIC survey results. In fact, relative to 2009, the proportion of households that are unbanked, but previously had an account, has not significantly changed.
Another column ("Yes, the Payday Loan Can be Reinvented," Feb. 21) discussed bank offerings of small dollar loans, suggesting that banks generally did not offer such products. To the contrary, the FDIC'S 2011 Survey of Banks' Efforts to Serve the Unbanked and Underbanked found that about 8 in 10 financial institutions offer loans under $2,500 with repayment terms of 90 days or longer, annual percentage rates at or below 36%, and loan approvals in less than 24 hours.
At the same time, other FDIC survey results show that a relatively high proportion of households that use credit products from alternative financial service providers (about 1 in 5) did so because they perceived that "banks don't make small dollar loans." Taken together, the findings from these FDIC surveys suggest a market opportunity for financial institutions to get the word out to consumers that they offer affordable small-dollar loan products.
The FDIC has long encouraged banks to offer low-cost, transparent, small dollar loan products. The FDIC continues to believe that banks can offer small dollar loans that are both cost-effective and responsive to consumers' needs. An objective review of the data lends support to this position.
Andrew Gray is the Deputy to the Chairman for Communications at the FDIC.