Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

News Now

CU System
CFSI develops guide for small-dollar credit offerings
CHICAGO (2/28/14)--Access to high-quality, small-dollar credit can help individuals build wealth and weather financial turbulence. The Center for Financial Services Innovation (CFSI) released a Compass Principles guide to help identify what such a program would look like.
In 2012, consumers spent an estimated $41.2 billion on small-dollar credit products such as payday loans, deposit advances, tax refund anticipation checks, auto title loans, and secured and subprime credit cards.
Broadly speaking, small-dollar credit refers to consumer loans of less than $5,000 with terms ranging from two week to three years, CFSI said. It defines an affordable small-dollar loan as one where the borrower can successfully repay the loan without re-borrowing and still meet the basic needs of food, shelter and medical care. Loan amount, repayment period, interest rates and fees all factor into the affordability of the loan.
Unfortunately, many small-dollar credit products serve not to get the borrower through a tough time, but instead enmesh them in a cycle of deepening debt and repeat borrowing.
The guide defines high-quality, small-dollar loans as ones that:
  • Are made with high confidence in the borrower's ability to pay;
  • Are structured to support repayment;
  • Are priced to align profitability for the provider with success for the borrower;
  • Create opportunities for upward mobility and improved financial health
  • Have transparent marketing, communications and disclosures;
  • Are accessible and convenient; and
  • Provide support and rights for borrowers.
All need to reflect the Compass Principles of embracing inclusion, building trust, promoting success and creating opportunity, CFSI said.
Credit is not the answer for every consumer, the guide noted. "For some people, however, access to credit might only worsen their financial situation" because they have little income or unmanageable debt. They are at risk of becoming repeat borrowers, falling deeper into the cycle. Non-credit solutions--job training, budgeting help or savings tools--may be more appropriate.
Advisers to the project included Consumer Federation of America; Kinecta FCU, Manhattan Beach, Calif.; the National Federation of Community Development Credit Unions; and Self-Help FCU, Durham, N.C.
RSS print
News Now LiveWire
.@RepDennyHeck to @NWCUA Amplify conference audience: "More often than not, CUs are part of the solution"
12 hours ago
LA Laker and NBA Legend Earvin "Magic" Johnson was the keynote speaker Tuesday @CCULReach, hosted by the Cal/Nev #CreditUnion Leagues
13 hours ago
.@growfinancial's #salsa sensation spices up seed giveaway #NewsNow
13 hours ago
.@TheNCUA Office of Small CU Initiatives soon--maybe Nov.--will launch website for #CUs 2 research #creditunion vendors or service providers
13 hours ago
.@TheNCUA says late 2Q Call Report filers 2 pay total of $17,111 in penalties.Individual penalty range is $52 to $1,824;median is $256. 2of2
14 hours ago