, I appreciate the acknowledgment that banks are stepping into a space that non-traditional, Alternative Financial Services lenders [AFS] lenders have served for years: short-term, small-dollar loans [$50 to $1500] for individuals needing immediate financial assistance. 

However, while banks may be newcomers to this arena, it’s essential to understand that they have not improved upon what specialized [AFS] subprime lenders have been offering for years.

In fact, subprime lenders play a crucial role in providing financial solutions to a huge demographic underserved by traditional financial institutions.

FACTS ABOUT SMALL-DOLLAR LOANS

Facts About Small-Dollar Loans

• Availability and Regulation
• Small-dollar loans are available by state-licensed lenders in 30+ states and are highly regulated.
• Usage Statistics
• About 16 million households use these types of loans annually.
• Loan Costs
• The average fee for a single-payment small-dollar loan is $15 per $100 borrowed. You’re paid 1X per month? Borrow $100 and pay $115 on your next payday. [Fully disclosed on lenders websites and B & M walls.]
• The monthly payment for an installment loan is dependent on the loan’s term.
• Consumer Satisfaction 96% of borrowers find small-dollar loans to be useful.
• Consumer Complaints
• Small-dollar loans constitute only 1.5% of all consumer complaints submitted to the Consumer Financial Protection Bureau (CFPB).
• Complaints about small-dollar loans have been on a consistent decline for 22 straight months.
• Complaint Nature
• Both CFPB and Better Business Bureau (BBB) data suggest that most complaints about small-dollar loans are related to scams rather than regulated lenders.
• Financial Resilience
• Approximately 65% of USA households struggle with an unanticipated expense of $400.
• Approximately 160,000,000 USA residents live paycheck to paycheck!
• Approximately 40% of USA households earning > $100,000 annually live paycheck to paycheck.

PROS & CONS OF SMALL-DOLLAR LOANS BY AFS LENDERS

PROS

• Banking Requirements
• An active checking account is necessary.
• Income Verification
• Proof of income is required.
• Identification
• Valid identification must be provided.
• Age Limit
• Applicants must be at least 18 years old.
• Accessibility
• Subprime lenders offer services to people who may not even qualify for a bank’s small-dollar loans. A significant number of these individuals may not have a long-standing relationship with a bank or fail to meet other criteria.
• Access: From the comfort of their home, office, school, bicycle… borrowers can apply for a small-dollar loan and access their funds within minutes.
• Immediacy
• Speed! Subprime lenders specialize in fast approvals and disbursements, often providing lifelines for people in emergencies the SAME DAY!
• Cash: 
• Many subprime lenders dispense cash into their clients’ hands within minutes
• Debit Cards: 
• Subprime lenders can deposit loan proceeds onto a client’s debit card in seconds.
• Simplicity:
• Less red tape and bureaucracy are involved when borrowing from specialized subprime lenders, making it more straightforward for borrowers.
• Credit History Flexibility:
• While most banks will check your credit, many subprime lenders offer loans without a credit check or with lenient credit requirements.
• Financial Inclusion:
• Subprime lenders serve a demographic ignored by traditional banking institutions, thus promoting financial inclusion.
• Quick Turnaround
• Time-sensitive financial needs are met more readily.
• Niche Expertise
• Specialized subprime lenders have more experience in assessing risk in their clientele and can often offer more customized solutions.
• Disclosure: Legitimate lenders 100% disclose all fees, the APR…
• Regulatory Scrutiny
• Subprime lenders are subject to intense scrutiny and regulation, making it expensive for them to operate.
• Competition: Online and storefront competition for customers is intense. Great for borrowers!

Cons:

• Higher Interest Rates
• The interest rates are higher than bank loans due to the level of risk involved.
• Repayment Terms
• Some loan products require quick repayment, which can be challenging for some borrowers.
• Credit Building: AFS lenders rarely contribute to improving their customers’ credit scores. [This is evolving.]

BANK & CREDIT UNION REQUIREMENTS TO OBTAIN SMALL-DOLLAR LOANS

BANKING REQUIREMENTS

• An active checking account is necessary.
• Typically, this checking account must be seasoned for a minimum of 6 months!
• Income Verification
• Proof of income is required. [Gig workers need not apply!]
• Identification
• Valid identification must be provided.
• Age Limit
• Applicants must be at least 18 years old.
• B of A Example: You must have a Bank of America checking account that has been open for at least 1 year or 2.5 years if you don’t have a credit score. [B of A is a typical example!]
•  Account History: You must have a positive balance in your Bank of America checking account and make regular monthly deposits.
• Direct Deposit: Direct deposit of your income into your B of A  account is mandatory. Thus, banks have virtually zero risk of default! Hence their low fees unless the borrower experiences a $35 NSF fee.
• You cannot have an open Balance Assist loan and must not have opened 6 Balance Assist loans in the last 12 months.
• Credit-based factors are also considered in your eligibility. [Subprime consumers have credit issues! Always!!]

• A Typical Bank Disclosure: To be eligible to apply for a small-dollar loan, applicants must have an open U.S. Bank personal checking account with recurring direct deposits.
• Positive Balance: Must maintain a positive balance and make regular deposits. Each checking account in which you are an owner or co-owner must have a positive balance as of the end of the previous business day.
• NSF Fees: If you don’t have enough money in your account or your linked Balance Connect® for overdraft protection account at the time of a transaction, we’ll decline or return it. Even in Decline All, your account may still become overdrawn. This can happen if your debit card is authorized for one amount, but the final amount is higher (for example, adding a tip at a restaurant).
• Loan History: Cannot have multiple Balance Assist loans within a year. There is a $5 fee for opening a Balance Assist loan, and there are no other interest or finance charges. To help you compare this to other products in the market, the $5 fee would translate into an effective Annual Percentage Rate (APR) of 5.99% to 29.76%, depending on the amount borrowed. Repayment is made monthly over a period of three months. Example: If you took a $100 Balance Assist loan, your total to repay would be $105 with an equivalent Annual Percentage Rate (APR) of 29.76%, and a payment of $35 due in 30 days, $35 due in 60 days and $35 in 90 days.
• For every $100 borrowed: you pay a $6 fee. If you borrow $400, your fee will be $24. You’ll pay back a total of $424 in three monthly payments of approximately $141.33 each. Your total cost to borrow (annual percentage rate) will be 35.65%.
• Credit Factors: Credit history and other credit-related factors are considered.

CONCLUSION

While it’s promising to see traditional banks offer more solutions to consumers who need small-dollar loans, it’s imperative to remember that they are not the first to do so.

Subprime lenders have been filling this gap for years and continue to offer critical services to those who need them most.

These lenders bring unique advantages such as greater accessibility, quicker turnaround, and a higher level of specialization in serving credit-constrained consumers.

Banks entering this space doesn’t necessarily make them a better or more ethical choice; it merely broadens the options available.

The critical factor is that consumers have choices that suit their financial situations and immediate needs.

In that light, subprime lenders remain vital to the economic ecosystem, providing services many traditional banks are still learning to offer effectively.

WHAT WE DO:

My Team and I are subprime lending pros and masters of small-dollar loans for the masses.

We know how to launch/improve a consumer loan business and get licensed in any state.

Are you interested in learning more about the Tribal-Sovereign Nation Model? Reach out! We formed Leaning Rock Finance Consulting Group in 2011. We introduce Tribal Economic Boards to lenders.

We can create a business plan to make even the most conservative investor say, “I’ll lend you the money!”

We are website-building wizards, and we’ll set you up with an online loan application process in no time.

We are wizards at selecting loan management software, acquiring customers, processing loan applications, underwriting subprime loans, and funding the loans.

And when it comes to collecting on nonperforming loans, we are like a bloodhound on the scent of a bacon cheeseburger.

So, if you have a voracious desire to enter the “business of lending money to the masses,” come to us, and we’ll make it happen with a touch of humor, fun, and SERIOUS profits!

LET'S BRAINSTORM!