A Federal Deposit Insurance Company run program designed to compete with payday lenders has been designated a “failure” by the group that initiated it less than two years after its creation.
In a report released by the Financial Service Centers of America entitled The FDIC’s Small-Dollar Loan Pilot Program: A Case Study after One Year, banks were found to be unwilling and unable to translate incentives provided by the FDIC into effective small dollar loans for the Americans who need them.
The program, which had been initiated in February 2008 to allow banks the ability to provide a profitable alternative to payday loans for consumers, instead turned out to be anything but as consumers largely ignored it. While 446 participating banks made 8,346 loans under $1,000, the report added that a single established payday lender could issue 8,743 payday loans in a single year.
“This pilot program is destined for failure, not success,” said FISCA Chairman Joseph Coleman. “If anything, it points to the critical role that financial service centers play in the small dollar credit arena by servicing consumers’ need for this type of credit.”
The report added that the 36 percent annual percentage rate ceiling that has been imposed in the pilot program had turned many banks away from the program as it rendered the loans “not profitable or scalable” to them.
