-Nearly Three out of Every Ten Consumers who Recently Used a Small Dollar Online Installment Lending Product were Customers of the Six Banks Touted as Meeting Underserved Consumers’ Credit Needs-
ARLINGTON, Va. (May 17, 2023)—At the LendSuite Conference today in Naples, Fla., the Online Lenders Alliance (OLA) released new survey data finding that nearly three-in-ten consumers who used a small dollar online installment loan product in January 2023 were also customers of the six largest banks reportedly offering small dollar loans. While some opponents of small dollar lending products continue to claim that banks are offering small dollar products that fulfill consumers’ small dollar credit needs—including those of the banks’ own customers—OLA’s data calls into question the accuracy and validity of those claims.
For example, the Pew Charitable Trusts has repeatedly claimed that six of the eight largest U.S. banks (i.e. Regions Bank, Truist, Wells Fargo, Bank of America, Huntington Bank, and U.S. Bank) now “offer affordable small dollar loans,” and because of these new credit options, “millions of customers would finally have access to credit that they never had before.”
“These loans are a safer and more affordable option for customers who previously turned to high-cost payday loans or other alternative financial services, such as auto title loans and rent-to-own agreements,” Pew wrote in a recent article. “The new, accessible loans could also provide relief to consumers who have not previously turned to high-cost credit.” [emphasis added]
To evaluate whether these loans were truly accessible to consumers, OLA surveyed four large online installment lenders to find out what share of their customers primarily banked with the six large financial institutions that Pew touted as now offering accessible small-dollar loans. The data from the four large online installment lenders reveals that about 28 percent of their customers (representing more than 100,000 borrowers) primarily bank with the six largest banks that purportedly offer small-dollar credit (see Table 1).
Table 1: The share of customers at four online lending companies who bank at the largest national banks offering small-dollar loans.
|Banks||Share of Customers|
|Bank of America:||8%|
While the findings do not provide insight into exactly why these customers bypassed the banks’ SDL product, their strict eligibility requirements make it difficult for any consumer, whether a customer of the bank or not, to obtain them. The small-dollar loans are not accessible to those who are not already a customer of these institutions, preemptively excluding the vast majority of Americans. And even those who are customers of these banks are not guaranteed the ability to access credit.
As one example, the requirements for Bank of America’s small-dollar loan products include:
- Must have had an open Bank of America checking account for at least one year with a credit score, or 2.5 years without a credit score and currently have a qualified Bank of America checking account;
- Must have a positive balance in all Bank of America checking accounts and regular monthly deposits;
- Must not have any currently open Balance Assist loans;
- Must have taken out less than 6 Balance Assist loans in the past year; and
- “Credit-based factors” are taken into consideration.
It is not clear what Bank of America means by “credit-based factors,” except that this requirement would only make it more challenging for customers to obtain small-dollar credit.
On March 31, the Pew Charitable Trusts turned their narrative to credit unions, announcing that their small-dollar loan volume hit a new high in 2022, implying that more consumers were able to obtain credit than ever before:
“New data from the National Credit Union Administration (NCUA) shows that credit unions issued $227 million in loans through the administration’s Payday Alternative Loan (PAL) program in 2022, topping the previous record of $174 million, set in 2019, by 30% […] The growth means that more borrowers with limited or no credit history have been able to borrow funds quickly to cover urgent expenses and avoid more costly alternatives.”
This assertation paints a distorted view on credit unions’ record on providing small-dollar loans to consumers. While Pew focused on “loan volume” to support their assertion, they failed to mention that credit unions provided 7.3 percent fewer PAL loans in 2022 relative to 2019. The reason loan volume increased is because the average PAL loan jumped from $700 per loan in 2019 to $1,000 per loan in 2022.
In the end, the data clearly demonstrates the demand for alternative lenders in providing consumer credit, despite incomplete assertions that banks and credit unions are sufficiently providing small-dollar credit to those who need it.
“While some of these banks may technically offer small-dollar loans, that does not mean that these loans are accessible for those who actually need them, further highlighting the importance of protecting the online lending marketplace that OLA’s members are a robust part of, ” said Andrew Duke, Executive Director of the Online Lenders Alliance. “Consumers benefit from more options in a robust market, and policymakers should not be misled about the important role of alternative lenders in providing credit to those who need it.”