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

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 ;  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

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

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 fee15.0% - credit score 621 and up18.5%- credit score 570 to 62022.0%- credit score 569 and below18.5% - 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 LawFederal 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

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

Advisory Committee Meeting on Economic Inclusion

Advisory Committee Meeting on Economic Inclusion

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

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

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

Advisory Committee Meeting on Economic Inclusion

Advisory Committee Meeting on Economic Inclusion