A new report from the U.S. Government Accountability Office (GAO) found regulatory uncertainty around small-dollar loans impeded banks from offering these products.
The report examined the impact of regulatory action related to small-dollar loans from the Consumer Financial Protection Bureau (CFPB), Federal Reserve, Federal Deposit Insurance Corporate (FDIC), and Office of the Comptroller of the Currency (OCC) from 2010 to 2020. More than 19 actions were taken by these four regulatory agencies over the past decade, resulting in heightened uncertainty for banks, the GAO report said.
“In particular, some market participants and observers noted that banks do not want to offer small-dollar products because they are expensive to develop, and the regulations or supervisory expectations may change,” the report said.
Specifically, the GAO report highlighted the impact of supervisory guidance issued by the OCC and FDIC in 2013 on deposit advance products. It also said more recent efforts aimed at encouraging financial institutions to develop these products have only yielded further uncertainty and hesitation for banks.
“Despite these actions by the regulators, some market participants and observers said regulatory uncertainty remains among banks. […] Some market participants and observers […], including four banks, had concerns that the current guidance did not provide clear guidelines for banks that would shield them from regulatory risks,” the report said.
The GAO report was commissioned by U.S. Sens. Gary Peters (D-MI) and Mike Rounds (R-SD). The Consumer Bankers Association said excessive regulation stifles innovation and product development.
“When 6 in 10 Americans cannot afford an unexpected $1,000 expense, many hardworking families rely on short-term liquidity products to meet an emergency need. Unfortunately, too many regulatory pressures have forced banks out of this marketplace and consumers to satisfy their needs from payday lenders and other less-regulated venues. CBA is appreciative the GAO reaffirmed our longstanding position on this issue and will continue to advocate for policymakers to implement needed policy changes aimed at protecting access to affordable credit for consumers,” CBA President and CEO Richard Hunt said.