Last month, the Consumer Financial Protection Bureau provided a “No Action” letter to Bank of America regarding its innovative “Balance Assist” no-interest installment loan program. A short-term, small-dollar lending program, Balance Assist lets customers who have had a Bank of America checking account for at least a year borrow up to $500 for a flat fee of $5. The loans carry no interest rate and are repaid over three months.
“By offering a small-dollar credit option at an APR below 36% with no late payment or prepayment penalty fees, Bank of America would significantly improve the market options available to customers facing short-term liquidity needs as, according to sources cited in the BPI application, many payday loans carry APRs of as much as 300% to 500%,” Bank of America wrote in its request for “No Action.”
In providing a “No Action” letter to Bank of America, the Consumer Financial Protection Bureau confirmed it will not make supervisory findings or bring supervisory or enforcement actions against Bank of America under its authority to prevent unfair, deceptive, or abusive acts or practices, predicated on the offering of a Balance Assist loan consistent with Bank of America’s application. This reduces the risk of the program for Bank of America.
“Clients were telling us that they can’t make it quite there from paycheck to paycheck. So, this is a bridge,” Steve Boland, Bank of America’s retail head, told the Charlotte Observer.
Regulators have urged banks to make such loans for years. In March, the Board of Governors of the Federal Reserve System, the Consumer Federal Protection Bureau, the Federal Deposit Insurance Corporate, the National Credit Union Administration, and the Office of the Comptroller of the Currency put out a joint statement asking banks to help borrowers who were struggling to repay loans as a result of the economic contraction caused by the coronavirus. The regulators expressed support for small-dollar loans. They asked banks, savings associations, and credit unions “to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow.”
In its announcement, Bank of America joins traditional banks like U.S. Bank and KeyBank in offering small-dollar loans, as well as fintechs like Square, which began testing a new feature in August that lets users borrow up to $200 for a flat fee of 5% and a four-week payback period.
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