Small Consumer Loans

As the CFPB publishes its Small Dollars Loan Regulation, the supervisory authorities - the OCC, the Fed, the FDIC and the NCUA - are beginning to assess small loans more positively. Regulatory authorities know that small loans are a $30 billion per year sector in the consumer credit area.

And according to a study by the PEW Charitable Trusts, three fourths of all US homes use small loans. "Non-bank loan option prices are often bad, with costly loans dominant. 12 million Americans each year use Payday Loans, and many others use various types of high cost loans.

FDIC has found that 20 per cent of all US homes are underfunded, which means they use alternate financing methods to bank and cooperative banking." Whilst the PEW review focuses on payment day and security loans, there is a lessons learned for conventional instalment creditors. It seems that banking and cooperative societies have a lot to offer when they enter this sector of lender activity.

On the other side, consumer financing firms usually have higher cost of equity and higher cost to cover their overheads. Banks and cooperative banks have probably learnt a great deal since their regulatory agencies closed most small dollars lending programmes five or six years ago. This means that if they provide more cautious small loans with equitable prices, accessible payment terms and a proper reimbursement plan, they can more readily rival consumer financing firms.

PEW's survey further argues that banking and cooperative banking are very well positioned to achieve a larger small loan franchise in dollars. Now, businesses that can provide their loans face-to-face, effectively and above all quickly will remain able to compete in this new one. In the consumer loan sector, the concept of "personal loans" has always had a genuine significance.

Personality has been the reason for the historic triumph of consumer financing firms. Consumers' financing firms need to double their spending to maintain their shares when banking and cooperative lending institutions work together to rival small loans.