Small Dollar Loan Pilot Program

Small-Dollar Loan Pilot Program

In February 2008, the FDIC began a two-year pilot project to review affordable and responsible small-dollar loan programs in financial institutions.

The pilot is a case study intended to identify effective and replicable business practices to help banks incorporate affordable small-dollar loans into their other mainstream banking services. Best practices resulting from the pilot will be identified and become a resource for other institutions. Thirty-two (32) volunteer banks are participating. These banks have total assets ranging from $26 million to $10 billion and they are in diverse geographic locations.

Program Requirements
A key goal of the pilot is to observe and encourage participating institutions to experiment with providing safe, sound, affordable, and profitable small-dollar loans. Therefore, the FDIC has provided general guidelines for banks that seek to participate. It is anticipated that current or planned products offered by the participating banks are generally consistent with the FDIC's guidelines on small-dollar lending (see FDIC Press Release: PR-52-2007: FDIC Issues Final Guidelines on Affordable Small-Dollar Loans)

Key features described in the Guidelines on Affordable Small-Dollar Loans include:

* Loan amounts of up to $1,000;
* Amortization periods longer than a single pay cycle and up to 36 months for closed-end credit, or minimum payments that reduce principal (i.e., do not result in negative amortization) for open-end credit;
* Annual percentage rates (APR) below 36 percent;
* No prepayment penalties;
* Origination and/or maintenance fees limited to the amount necessary to cover actual costs; and
* An automatic savings component.

Ways to Work

Ways to Work is a proven, innovative program that provides small loans to low-income parents who cannot get loans elsewhere. The purpose of the loan is to help family members pay for unexpected expenses that could interfere with their ability to keep a job or stay in school. Quite often the loans are used to purchase or fix a car. Many people take reliable transportation for granted. But to some, owning a car means the difference between getting or keeping a decent job.

Vision

Our vision is a healthy society and strong communities for all children and families.

Mission

The mission of Ways to Work, Inc. is to strengthen the capacity of member organizations of the Alliance to serve their communities by promoting strategies to improve the financial condition of distressed families.

Values

* We understand that people need financial help at various times in their lives.

* We assume the best about loan applicants and support them in living up to their highest aspirations.

o We believe people want to better themselves, improve the lives of their children, and contribute to society.

o We believe that small amounts of money at the right moment can make a great amount of difference in moving working poor families along the path to self-sufficiency and away from welfare and dependency.

o We welcome and support applicants who exhibit a potential for success in work or school even though they may have had limited success with past credit experience.

o We believe that the climate of mutual support and responsibility within informal local communities can provide built-in incentives for borrowers to repay loans.