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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION AND 

REGULATION

DIVISION OF CONSUMER AND

COMMUNITY AFFAIRS

SR 20-14

CA 20-8

May 20, 2020

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE 

BANK AND TO INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE

SUBJECT: Interagency Lending Principles for Making Responsible Small-Dollar Loans

Applicability: This letter is relevant to all institutions supervised by the Federal Reserve.

On May 20, 2020, the Federal Reserve, the Federal Deposit Insurance Corporation, the 

Office of the Comptroller of the Currency, and the National Credit Union Administration 

(collectively, the “agencies”) issued the attached “Interagency Lending Principles for Making 

Responsible Small-Dollar Loans” (“Principles”) to encourage supervised banks, savings 

associations and credit unions (collectively, “financial institutions”) to offer responsible smalldollar loans to their customers for both consumer and small business purposes.

1 The agencies

encourage financial institutions to refer to the Principles when implementing any reasonable 

policies and sound risk management practices for responsible small-dollar lending activities.2

Additional Federal Reserve resources that financial institutions may find helpful are listed at the 

end of this letter. 

Reserve Banks are asked to distribute this letter to the Federal Reserve-supervised 

financial institutions in their districts, as well as to their supervisory and examination staff. If 

Federal Reserve-supervised financial institutions have questions about the information set forth 

in this letter or the Principles, they are encouraged to contact their primary contact at the 

responsible Reserve Bank. In addition, questions may be sent via the Board’s public website.

3

Michael S. Gibson Eric S. Belsky

Director Director

Division of Supervision Division of Consumer and

and Regulation Community Affairs

 1 See May 20, 2020, Board Press Release at:

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200520a.htm.

2 Refer to the Board’s public website at: https://www.federalreserve.gov/newsevents/pressreleases.htm.

3 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.
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Attachment:

• Joint Release, “Interagency Lending Principles for Making Responsible Small-Dollar 

Loans” (May 20, 2020). 

Cross References:

• 12 CFR 208, Appendix D-1, Interagency Guidelines Establishing Standards for Safety 

and Soundness

• SR letter 20-7/CA letter 20-5, “Joint Statement Encouraging Responsible Small-Dollar 

Lending in Response to COVID-19”

• CA letter 19-11, “Interagency Statement on the Use of Alternative Data in Credit 

Underwriting”

• SR letter 16-11, “Supervisory Guidance for Assessing Risk Management at Supervised 

Institutions with Total Consolidated Assets Less than $50 Billion” 

• SR letter 13-19/CA letter 13-21, “Guidance on Managing Outsourcing Risk” 

• SR letter 95-51, “Rating the Adequacy of Risk Management Processes and Internal 

Controls at State Member Banks and Bank Holding Companies” 

Additional Resources:

• Consumer Compliance Supervision Bulletin, July 2018 (see section on small-dollar loan 

pricing and fair lending considerations) at: 

https://www.federalreserve.gov/publications/2018-july-consumer-compliancesupervision-bulletin.htm

• Federal Reserve Board Innovation Website (resource for stakeholders interested in 

engaging with the System on innovation-related matters) at:

https://www.federalreserve.gov/aboutthefed/innovation.htm
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Board of Governors of the Federal Reserve System

Federal Deposit Insurance Corporation

National Credit Union Administration

Office of the Comptroller of the Currency

Interagency Lending Principles for Offering Responsible Small-Dollar Loans

May 2020

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance 

Corporation, the National Credit Union Administration, and the Office of the Comptroller of the 

Currency (collectively, “the agencies”) are issuing these principles to encourage supervised 

banks, savings associations, and credit unions (collectively, “financial institutions”1

) to offer 

responsible small-dollar loans to customers for both consumer and small business purposes. The 

agencies recognize the important role that responsibly offered small-dollar loans can play in 

helping customers meet their ongoing needs for credit due to temporary cash-flow imbalances, 

unexpected expenses, or income shortfalls, including during periods of economic stress, national 

emergencies, or disaster recoveries. Well-designed small-dollar lending programs can result in 

successful repayment outcomes that facilitate a customer’s ability to demonstrate positive credit 

behavior and transition into additional financial products. The agencies offer these principles

due to the evolving conditions and products in the small-dollar loan markets over the last several 

years.

The current regulatory framework allows financial institutions to offer responsible small-dollar 

loans. The agencies recognize that financial institutions are well-suited to meet these credit 

needs and some already offer these products, consistent with safe and sound principles and

subject to applicable laws and regulations.

2 These lending principles cover a variety of smalldollar loan structures that may include open-end lines of credit with applicable minimum 

payments or closed-end loans with appropriate shorter-term single payment or longer-term 

installment payment structures.

3

 

Responsible small-dollar loan programs generally reflect the following characteristics:

• A high percentage of customers successfully repaying their small dollar loans in 

accordance with original loan terms, which is a key indicator of affordability, eligibility,

and appropriate underwriting;

• Repayment terms, pricing, and safeguards that minimize adverse customer outcomes, 

including cycles of debt due to rollovers or reborrowing; and

 1 These principles do not apply to financial institution affiliated non-bank lenders or other non-bank lenders. These 

principles could apply to U.S. branches and agencies of foreign banks.

2 See, e.g., Interagency Guidelines Establishing Standards for Safety and Soundness at 12 CFR 208, Appendix D-1 

(Federal Reserve); 12 CFR 364, Appendix A (FDIC); and 12 CFR 30, Appendix A (OCC). Credit unions are 

subject to safety and soundness requirements under the Federal Credit Union Act and the NCUA’s regulations. See, 

e.g., 12 U.S.C. 1786(b), (e); 12 CFR 741.3.

3 These principles do not address financial institution overdraft programs or credit cards.
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• Repayment outcomes and program structures that enhance a borrower’s financial 

capabilities.

Financial institutions seeking to develop new programs or expand existing responsible smalldollar lending programs should do so in a manner consistent with sound risk management 

principles, inclusive of appropriate policies.

4 Well-managed programs will generally align with

the financial institution’s overall business plans and strategies. Programs could include 

effectively managed deployment of innovative technology or processes for customers who may 

not meet a financial institution’s traditional underwriting standards.

5 Such programs can be 

implemented in-house or through effectively managed third-party relationships.6 In all 

programs, responsible lending products are offered in a manner that ensures fair access to 

financial services, fair treatment of customers, and compliance with applicable laws and 

regulations, including fair lending and consumer protection laws. 

The agencies encourage financial institutions to refer to the core lending principles below when 

implementing reasonable policies and risk management practices for responsible small-dollar 

lending activities. Financial institutions may, but are not required to, discuss plans for smalldollar loan products with their supervisors before implementation, particularly if the offerings 

constitute substantial deviations from their existing business plans.

Core Lending Principles

The agencies believe that financial institutions can offer small-dollar loans safely and

responsibly. Some financial institutions already offer a variety of small-dollar loan products on 

an open-end line of credit or closed-end basis with various minimum payments, installment 

payments, and maturities. 

 4

 For Federal Reserve: SR letter 95-51, “Rating the Adequacy of Risk Management Processes and Internal Controls 

at State Member Banks and Bank Holding Companies,” and SR 16-11, “Supervisory Guidance for Assessing Risk 

Management at Supervised Institutions with Total Consolidated Assets Less than $50 Billion.” Note as of June 8, 

2016: See SR letter 16-11 for supervisory guidance on assessing risk management practices at state member banks, 

bank holding companies, and savings and loan holding companies (including insurance and commercial savings and 

loan holding companies) with less than $50 billion in total consolidated assets, and foreign banking organizations 

with consolidated U.S. assets of less than $50 billion. SR letter 95-51 remains applicable to state member banks and 

bank holding companies with $50 billion or more in total assets until superseding guidance is issued for these 

institutions. For FDIC: FDIC’s Risk Management Manual of Examination Policies, Section 3.2 (Loans). For 

NCUA: Federal credit unions offering PALs small-dollar loans under 12 CFR 701.21(c)(7)(iii) and (iv) must follow 

the specified regulatory framework for those loan programs. For OCC: OCC Bulletin 2017-43, “New, Modified, or 

Expanded Bank Products and Services: Risk Management Principles.”

5 Refer to Interagency Statement on the Use of Alternative Data in Credit Underwriting (December 3, 2019).

FIL-82-2019 (December 13, 2019)

6

 For Federal Reserve: SR letter 13-19/CA 13-21, “Guidance on Managing Outsourcing Risk.” For FDIC: Financial 

Institution Letter (FIL) 44-2008, “Third-Party Risk: Guidance for Managing Third-Party Risk” dated June 6, 2008. 

For NCUA: NCUA Letter to Credit Unions 07-CU-13, “Evaluating Third Party Relationships” (December 2007) 

and NCUA Supervisory Letter 07-01, “Evaluating Third Party Relationships” (October 2007). For OCC: OCC 

Bulletin 2013-29, “Third-Party Relationships; Risk Management Guidance,” dated October 30, 2013. Also see 

OCC Bulletin 2020-10, “Third-Party Relationships: Frequently Asked Questions to Supplement OCC Bulletin 2013-

29,” dated March 5, 2020.
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The agencies’ core lending principles for financial institutions that offer small-dollar loan 

products include:

• Loan products are consistent with safe and sound banking, treat customers fairly, and 

comply with applicable laws and regulations.

• Financial institutions effectively manage the risks associated with the products they offer, 

including credit, operational, and compliance.

• Loan products are underwritten based on prudent policies and practices governing the 

amounts borrowed, frequency of borrowing, and repayment requirements.

Prudent lending policies and sound risk management practices together support a financial 

institution’s ability to identify, monitor, manage, and control the risks inherent in its lending 

activities, including responsible small-dollar lending programs. As noted above, there are 

several associated risks to be managed in the offering of loan products. Effective management of 

such risks may include new product development protocols that address, among other issues, the 

clear disclosures of terms, the risk profile of customers using the products, the use of new 

technologies, the use of alternative underwriting information, or the use of third-party 

arrangements. 

Reasonable loan policies and sound risk management practices and controls for responsible 

small-dollar lending would generally address the following:

• Loan structures: Loan amounts and repayment terms that align with eligibility and 

underwriting criteria and that promote fair treatment and credit access of applicants, and 

product structures, including shorter-term single payment structures, that support

borrower affordability and successful repayment of principal and interest/fees in a 

reasonable time frame rather than reborrowing, rollovers, or immediate collectability in 

the event of default.

• Loan pricing: Loan pricing that complies with applicable state and federal laws and 

reflects overall returns reasonably related to the financial institution’s product risks and 

costs. Any products offered through effectively managed third-party relationships would 

also reflect the core lending principles, including returns reasonably related to the 

financial institution’s risks and costs.

• Loan underwriting: Analysis that uses internal and/or external data sources, such as 

deposit account activity, to assess a customer’s creditworthiness and to effectively 

manage credit risk.7 Such analysis may facilitate sound underwriting for credit offered to 

non-mainstream customers or customers temporarily impacted by natural disasters, 

national emergencies, or economic downturns. Underwriting can also use effectively 

managed new processes, technologies, and automation to lower the cost of providing 

responsible small-dollar loans.

 7

 Supra, note 5.
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• Loan marketing and disclosures: Marketing and customer disclosures that comply 

with consumer protection laws and regulations and provide information in a clear, 

conspicuous, accurate, and customer-friendly manner. Applicable laws and regulations 

may include but are not limited to the Equal Credit Opportunity Act, the Truth in Lending 

Act, Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive 

acts and practices, and Section 1036 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, which prohibits unfair, deceptive, or abusive acts and 

practices.

• Loan servicing and safeguards: Processes that assist customers in achieving successful 

repayment while avoiding continuous cycles of debt and significant credit costs due to 

rollover or reborrowing. For customers who experience distress or unexpected 

circumstances affecting their ability to repay small-dollar loans, such processes may 

include timely and reasonable workout strategies. Such processes could also include 

restructuring single payment loans or open-end lines of credit into installment loan 

structures in appropriate circumstances.