UPDATE 1-U.S. regulators urge banks to get back into small-dollar lending

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WASHINGTON, March 26 (Reuters) - U.S. bank regulators told banks on Thursday they should strongly consider extending small-dollar loans to struggling people and businesses to help them make ends meet during the coronavirus pandemic.

In a joint statement from the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau and other regulatory agencies, the regulators said banks are well-positioned to help struggling borrowers who are facing severe drops in revenue or income with short-term lines of credit. The statement is aimed at reassuring banks to do more short-term lending, after institutions largely abandoned the practice in recent years amid regulatory scrutiny.

"The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries," they said in a statement.

The public urging by four bank regulators and a credit union regulator mark the latest example of government watch-dogs publicly and persistently urging financial institutions to do whatever they can to help struggling customers, reassuring them the government is not looking to criticize those efforts.

The agencies said that current rules allow banks to offer a variety of short-term lending products, including installment loans, open-ended lines of credit and single payment loans. They added that banks should place an emphasis on helping borrowers who may struggle to repay such loans in a way that does not require them to borrow even more to cover costs.

The regulators went on to say that they are working longer-term on additional guidance for banks on how to offer small-dollar loans properly in "more normalized times." (Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Dan Grebler)

03/26/2020 16:35

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