We—and many other mission-driven Community Development Financial Institutions (CDFIs)—have known this for a long time. And now the OCC has weighed in.
According to a recent bulletin from The Office of the Comptroller of the Currency, “banks can provide affordable short-term, small-dollar installment lending options that help consumers, including consumers with weaker credit histories who have the ability to repay. Bank-offered products can help lead consumers to more mainstream financial services without trapping them in cycles of debt. When banks offer products with reasonable pricing and repayment terms, consumers also benefit from other services that banks regularly provide, such as financial education and credit reporting.”
Typically, the largest banks serve the needs of the largest depositors; a model that can exclude people in our city who live paycheck to paycheck or people who may never have had a relationship with a bank before. We know that low-and moderate-income consumers often use high-cost predatory products such as payday lenders, rent-to-own stores, pawnshops or even loan sharks to get a small loan. That’s because for the most part banks and credit unions are not providing them.
For banks who would like to serve their community the prospect may appear not to make great business sense: underwriting a small loan can be as much time as underwriting a larger and more profitable loan. And the risk may be higher. But we’ve seen tremendous community pay-off.
Since 2015 we’ve closed more than 1500 small dollar loans, totaling over $2 million, distributed to hardworking New Yorkers in every borough. Our lending team continually seeks to find the right balance between access, convenience, ease of use and price. We want our community to have access to the best choices possible and to build a sustainable program.
How do we accomplish this? By using innovative technology created by our tech partner, Happy Mango. They’ve helped us to expand our reach, lower costs, create scale and provide opportunities for borrowers to build credit and savings. Customers can even access financial counseling through the platform which in turn lowers risk. The loan, the counseling, financial wellness tools and underwriting are all done via the Happy Mango platform.
Our largest program, the Employee Opportunity Loan, is currently offered as a voluntary employee benefit through 21 partner employers with 8,000 eligible employees. These forward-thinking employers recognize that financial stress effects employees on the job and are aware that borrowing from retirement savings often has long-term, detrimental consequences. Other small dollar loans in our portfolio include The Start Loan and The Credit Builder Loan both of which help people build credit and save money.
As a CDFI bank and the first B Corp bank in New York State, our mission of financial inclusion—to create a world where all people deserve equal access and the opportunity to build prosperous and abundant futures for their families and communities—is the driving force in designing our small dollar loan program. Three years in and we are wedding mission and profit as we continue to pursue our successful double bottom line model. With the guidance form the OCC, we look forward to seeing the movement of financial inclusion expand.