On July 11-12, 2013, DWT partner Andy Owens attended a conference organized by the Federal Reserve Bank of Philadelphia (Federal Reserve) entitled Small-Dollar Credit: Products, Economics, and Regulation. The purpose of the conference was to explore the historical background of small-dollar credit, the evolution of small-dollar credit products and delivery methods, insights from economic research and theory about how markets for small-dollar credit products function, and regulatory developments that may affect the design and availability of small-dollar credit products. Conference attendees included representatives from companies that offer small-dollar products, consumer advocates, technologists, academics, and representatives from federal agencies, including the Federal Reserve, the CFPB and the FDIC.
Small-dollar credit products provide consumers with immediate access to cash, in many cases without considering creditworthiness. Products typically involve a small loan that must be repaid in a short amount of time and include payday loans, direct deposit advance loans, auto title loans, and non-bank installment loans. Recently, the market for small-dollar credit products has increased significantly, as underbanked consumers seek recourse to such products when in need of immediate funds, particularly when establishing and obtaining credit is a challenge. Industry players, including major financial institutions, have entered the market, creating innovative new instruments designed to comply with existing regulations but still meet the needs of the targeted demographic. Regulators, in turn, have begun to scrutinize such products more closely. For example, the CFPB released a white paper on Payday Loans and Deposit Advance Products on April 24, 2013.
Panel discussions at the conference focused on the history, product design, economic impact and regulation of small-dollar credit products. Highlights include the keynote speech by Professor John Caskey of Swarthmore College, which reviewed the evolution of small-dollar credit products, from the first products in the early twentieth century to today’s broad landscape, as well as the following panels:
- A discussion among industry players, including representatives from Advance America, Regions Bank, Republic Finance and Meta Payment Systems, regarding their respective products and product delivery methods;
- A discussion among regulators and consumer advocates regarding economic research on the use and effects of small-dollar products;
- A discussion among technologists, including representatives from LexisNexis Risk Solutions and Veritec Solutions, regarding data sources for research and policymaking with respect to small-dollar credit products; and
- A discussion between representatives from the CFPB and the FDIC of the regulatory environment for small-dollar products.
Throughout the conference, participants from all backgrounds generally appeared to agree that traditional sources of credit are not serving the needs of the underbanked population and that a significant demand for small-dollar credit products continues to exist. Additionally, industry representatives presented evidence that consumers who use such products typically demonstrate high levels of satisfaction, emphasizing the simple, easy-to-understand terms and hassle-free access to such products. Regulators did not indicate that regulations specifically targeted at small-dollar credit products would be immediately forthcoming. However, David Silberman, associate director for Research, Markets and Regulations at the CFPB, warned that the CFPB would apply the Dodd-Frank Act’s prohibitions on unfair, deceptive and abusive acts and practices to the offering and administration of small-dollar credit products, and that the CFPB would continue to research and monitor such products to gauge whether additional regulation will be necessary.