# Presentation: 743624

## Small Dollar Loans and In-School Branching as Entry Points for Reaching Underserved Markets 

- James P. Maloney
- Chairman, Mitchell Bank

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Small Dollar Loan Pilot

- Nature of FDIC Pilot
- FDIC Guidelines issued June 19, 2007– everything you need to know.
- _[www.fdic.gov/news/news/press/2007/pr07052a.html](http://www.fdic.gov/news/news/press/2007/pr07052a.html)_;  Bair, _Low-Cost Payday Loans_; www.aecf.org
- Why encouraged by FDIC
- Why banks would want to do it.

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Common Features of SDLs

- Fully Amortizing Term Loan-  $300 to $1000
- Breaking the Cycle of Multiple Renewals and Rollovers
- Not to be fee-based overdraft or bounce  protection
- Streamlined Underwriting, Processing and Decision Making
- Traditional Credit Scoring vs. Payday Lender Data; No credit score/thin file
- Savings Component and “suitability”

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## MITCHELL BANK: Payday Alternative Loan

| Product Element | Details | Comments |
| --- | --- | --- |
| Loan amount | $300.00 to $1,000.00
 | Limited to $500.00 for non-customers |
| Loan term | 6 to 12 month | Fully amortizing; no prepayment penalty |
| Cost – interest rate, APR, fees (broken out in detail) | $8.00 application fee
15.0% - credit score 621 and up
18.5%- credit score 570 to 620
22.0%- credit score 569 and below
18.5% - thin file/no credit score available | Interest rates the same regardless of term; 
No application fee and interest rate reduced to 15% if prior on time payment of PAL loan regardless of credit score; Non-customers must have credit score of 580 or higher; 18.5% rate for non customers |
| Underwriting – process, standards | Credit report; verified $1000.00 per month income or benefit source; low doc standards;
Customer tenure of 6 mo./ or loan amt reduced and higher credit score required | Non-loan officer approval; loan officer approval and credit counseling required for credit score 569 or less |
| Payment structure, frequency | Monthly fully amortizing loan payments | Option to prepay at any time. |
| Guidelines on repeat usage | No rollovers or refinancing of loan;  no more than 2 payday alternative loans in 12 mo. period | Waive application fee and credit report on new PAL loan and uniform 15% rate on second loan after on time payment of first loan |
| Other features – saving, credit building, etc. | 10% of the loan amount must be deposited in favored savings account | Credit agency reporting of loan payments- building credit and improving score |
| Governing regulations (state? Fed? Reg Z? TILA? Other? | Wisconsin Consumer Protection Law
Federal Truth in Lending | Applicable terms and right to cure etc. governed by state consumer law |
| Economics/profitability | Still too early;  have not had defaults so not possible to determine; profitable if no defaults | Bank anticipated a 15% to 20% default rate;  overestimated to date |

## Regulatory Issues and CRA

- State Consumer Protection Laws/Reg Z and TILA
- Subprime Interagency Guidance/FDIC
- CRA consideration and promise

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Cardinal Bank/ A Sustained Initiative

- Introduced in 2000 and now 8 years old
- Branch operated by 8 to 10 senior students—8 separate classes
- Overcoming trust issues and teaching financial literacy
- Over 800 new accounts for unbanked families
- Increase of community based accounts in Main Bank

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Slide 7

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Slide 8

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## CARDINAL BANK

- Background of start up
- Demonstrates importance of partnerships within community
- Formal branch application to FDIC and State regulators.
- Full service branch vs. “school” sub accounts
- Students are our “Ambassadors” to community

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## CARDINAL BANK

- Real accounts because we are targeting students and their parents
- Bank presence--officers of bank, not just teachers
- Separate Board of Directors/Officers of bank
- Students market bank to peers/ Classroom presentations

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Cardinal Bank

- New Expansion to formal Finance Class within School curriculum
- Students have become the family financial advisors
- Student Bankers teaching at elementary schools
- Employment of student bankers after graduation

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Slide 12

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009

## Slide 13

- Advisory Committee Meeting on Economic Inclusion

- February 5, 2009