Most Financial Institutions Do Not Provide Small-Dollar Loans

Almost three fourths of financial institutions do not provide small-dollar or direct deposit loans to customers but some are considering entering this line of business, a new survey from RateWatch found.

More than a third of the institutions without plans to offer these loans said that there wasn't demand for this type of product and another 34% said that the approach would not be profitable to them, RateWatch, which is owned by TheStreet, said Friday. Small-dollar and direct deposit type loans were defined as products typically meant to compete with pay day loans.

However, almost 13% of companies that do not offer the loans plan to explore the program within the next year.

Sixty percent of the institutions granting small-dollar loans were credit unions, RateWatch. Fewer than one in nine, or roughly 12%, of banks provided this type of financing, the survey found.

Two out of three financial institutions that offered the loans did so to serve underbanked clients more effectively while another 21% said the service allowed them to increase revenues. Of the financial institutions that offered this type of loan, more than half had been doing so for more than five years. Only 4.5% started offering the loans within the last year.

The survey was conducted in May and included responses from 259 financial institutions.

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