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Researchers : A Template for Success: The FDIC’s Small-Dollar Loan Pilot Program
Complete Description:The Federal Deposit Insurance Corporation’s (FDIC) two-year Small-Dollar Loan Pilot Program concluded in the fourth quarter of 2009. The pilot was a case study designed to illustrate how banks can profitably offer affordable small-dollar loans as an alternative to high-cost credit products such as payday loans and fee-based overdraft programs. During the pilot program, 28 participating banks made more than 34,400 small-dollar loans with a principal balance of $40.2 million. The pilot tracked two types of loans: small-dollar loans (SDLs) of $1,000 or less and nearly small-dollar loans (NSDLs) between $1,000 and $2,500. The average loan amount for SDLs was approximately $700, with an average term of 10 to 12 months. The average loan amount for NSDLs was approximately $1,700, with an average term of 14 to 16 months. Average interest rates for both types of loans ranged between 13 and 16 percent. About half of the banks charged an origination fee (the average fee was $31 for SDLs and $46 for NSDLs), and when this fee was added to the interest rate, all banks were within the targeted 36 percent annual percentage rate. Performance statistics of loans originated during the pilot show that while small-dollar loan borrowers are more likely to have trouble paying loans on time, the loans have a chargeoff risk similar to those in the general population of unsecured loans. Most pilot bankers indicated that small dollar loans were a useful business strategy for developing or retaining long-term relationships with consumers.
Date Published:Friday, January 1, 2010
Author:Rae-Ann Miller, Susan Burhouse, Luke Reynolds, and Aileen G. Sampson
Funding Agency: Federal Deposit Insurance Corporation
Type: Article;
Source: Administrative data;
Language: English
Audience: Researcher