The FDIC Is Pushing Small-dollar Loans Article

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The FDIC is pushing small-dollar loans

The article expresses the hope that the FDIC small-dollar loan program will be rolled out across more banks to ensure there is a fair opportunity for the low paid to borrow money without having to rely on the pay day loan companies.

Author: David Mayer

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Since the recession hit, more than one hundred banks across the US have failed. The Federal Deposit Insurance Corporation (FDIC) has the job of taking over failed banks. It’s a dirty job, but someone’s got to do it. In a country based on the idea of the free market, the rule should be that if a commercial operation fails, it should be allowed to fail. That’s the risk that investors and customers take when they deal with a commercial organization. Anyone can lose their money if they make the wrong decision. Except this ignores all the thousands of innocent depositors who might lose all their money if banks were allowed to fail and fade away. The government long ago decided it had to step in to protect people. It insures banks and, if they fail, it pays out to their depositors so everyone, rich and poor, gets their money back.

Once the FDIC steps in, it effectively runs the failed bank. What can be saved is saved. What is lost is given a decent burial. The idea is to rebuild the bank into something that can be sold to new owners. That way, the FDIC gets some of its money back in the sale price. The rest of its money comes from a levy on all the other banks. As with every insurance policy, all the banks that are insured are expected to pay the premiums. Once involved, the FDIC gets to express opinions on how the banks should be run both while under its supervision, and afterwards. When their role suddenly came to the fore at the start of the recession back in 2008, it identified a major weakness in the banking system. Main Street banks like well-heeled customers. They prefer not to lend to those whose lives have not been as successful. This leaves millions of adults across the US without access to bank accounts, banks loans, credit cards and all the other financial services that the better off take for granted.

The FDIC decided to start a process of change. It knew this would be a slow process and decided to run a pilot program first to collect evidence. Without evidence, it could never persuade banks to change their ways. It invited thirty-one of the failed banks to start making small-dollar loans to less-well-off customers - that’s loans of less than $2,500. More than a year later, the evidence is mounting up. Low-income borrowers are no more likely to be delinquent than their richer neighbors. The percentage default rates are almost identical between the two groups. If this program is rolled out to more banks, this will provide a welcome alternative to the pay day loan companies. Desperate people will no longer be driven into the arms of exploitative lenders. They will be given access to affordable loans on fairer terms. Obviously, this is not what the banking industry as a whole wants. It prefers things like they used to be. They long ago washed their hands of the poor and left them to the mercy of pay day loan companies. This is new hope for the marginalized and the poor who, for years, have struggled against a banking system that is stacked against them. If the FDIC succeeds, conventional banks will take over some, if not all of, the business of pay day loans.

About Author

If you are interested in the point of view expressed by David Mayer, visit http://www.my-payday-loan-place.com/fdic.html for more of his professional writing on a whole array of topics that relate people all around the world.

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The FDIC is pushing small-dollar loans