An Introduction to the FDIC’s Small-Dollar Loan Pilot Program

On February 5, 2008, the FDIC selected 31 banks to participate in its Small-Dollar Loan Pilot Program.1 The pilot is a two-year case study designed to illustrate how banks can profitably offer affordable small-dollar loans as an alternative to high-cost financial products, such as payday loans and fee-based overdraft protection. Participating banks provide quarterly information about their small-dollar loan programs, which will be analyzed to identify and report on the most effective features for creating profitable business models for such loans.

This article summarizes the key parameters of the pilot, the proposals that participating banks described in their applications, and the first quarter 2008 results. Overall, banks in the pilot originated more than 3,100 smalldollar loans, with a principal balance of about $3.7 million in the first quarter. Eight of the banks reported on existing small-dollar loan programs, while the remaining banks reported on new programs. It is difficult to draw conclusions on the basis of only one quarter of data for mostly new programs. However, an important initial observation is that small-dollar loans have provided pilot banks with opportunities for crossselling other products, which creates significant potential for building profitable customer relationships.

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