Affordable, Responsible, and
Feasible Small Dollar Loans: The
FDIC Small Dollar Loan Pilot
Association of Military Banks of
America Fall Workshop
September 14, 2010
Rae-Ann Miller, Special Advisor
202-898-3898
rmiller@fdic.gov
The Small-Dollar Loan Pilot
Program
• In February 2008, 31 banks were selected to
participate in the Small-Dollar Loan (SDL) Pilot
Program.
• The two-year case study explored how banks
can profitably offer small-dollar as an alternative
to high cost credit products.
• Data were collected quarterly from 1Q08
through 4Q09.
FDIC Small-Dollar Loan
Guidelines, June 2007
• Loan amounts up to $1,000
• Payment periods that extend beyond a single
paycheck
• APRs below 36 percent
• Low or no origination fees
• No prepayment penalties
• Streamlined underwriting
• Prompt loan application processing
• Automatic savings component
• Access to financial education
4Q09 Summary of Results for Small Dollar Loans
Number of
Banks
Reporting Total Average Minimum Maximum
Loans Up to $1000
Number of Notes 22 3,010 111 1 1,675
Note Volume 22 $2,168,295 $98,559 $500 $1,140,660
Loan Amount 22 N/A $724 $445 $1,000
Term (months) 22 N/A 12 2 24
Interest Rate 22 N/A 13.09% 4.00% 31.90%
Non-zero Fees 9 N/A $31 $8 $70
Source: FDIC
4Q09 Summary of Results for Nearly-Small Dollar Loans
Number of
Banks
Reporting Total Average Minimum Maximum
Loans $1000 - $2500
Number of Notes 12 2,301 192 1 1,151
Note Volume 12 $3,972,694 $331,058 $1,200 $1,942,837
Loan Amount 12 N/A $1,727 $1,200 $2,070
Term (months) 12 N/A 15 10 24
Interest Rate 12 N/A 13.99% 4.00% 33.53%
Non-zero Fees 6 N/A $43 $15 $70
Source: FDIC
Lessons Learned
• Defaults Comparable to General
Population
• Dominant Program Goal: Relationship-
Building Tool
• Programmatic Elements Linked to
Success
– Long-Term Board & Management Support
– Engaged Champion
– Location in LMI and Rural Communities
Lessons Learned
• Product Elements Linked to Success
– Loan Terms Longer Than a Few Pay Periods
– Strong, but Streamlined Underwriting
• Linked Savings and Financial Education
– Better Loan Performance May Be Correlated
– Mixed Views on Mandates
A Replicable Model for Small-Dollar Loans
A Safe, Affordable, and Feasible Template
For Small-Dollar Loans
Product Element Parameters
Amount $2,500 or less
Term 90 days or more
Annual Percentage Rate (APR) 36 percent or less
Fees Low or none; origination and other
upfront fees plus interest charged
equate to APR of 36 percent or less
Underwriting Streamlined with proof of identity,
address, and income, and a credit
report to determine loan amount and
repayment ability; loan decision
within 24 hours
Optional Features Mandatory savings and financial
education
Next Steps
• Objective: Small Dollar Loans
Become a Staple Product for
Mainstream Financial
Institutions.
Potential Strategies to Scale
Availability of Small Dollar Credit
– Highlight the Facts About Existing Models
– Encourage Partnerships
– Embrace New Technologies and Delivery
Channels
– Create Guarantees
– Regulatory Issues