FIs Offering SafeLink® Provide “Safe” Small Dollar Loan Solution

The American Bank reported September 26 that a “Small-dollar loan formula eludes bank, credit unions,” but many FIs have been offering successfully and profitably since 2013 loans up to $1,000 to consumers at a safe interest rate of 15% and not requiring a credit score.

Industry publication reports, “Small-dollar loan formula eludes banks, credit unions.”  FIs offering SafeLink® have in fact done so for years.

The solution is achieved by providing more value to both consumers and a greater relationship for the FI.  Too many efforts focus solely on the small dollar loan transaction, such as the pay day lending rule.  But nearly all consumers needing small dollar loans at safe interest rates also need transaction account services.  And specifically, many want an account that will assure no overdraft fees ever, even no fees on return check or ACH charges.  These services provide a winning solution.

While some FIs offer debit-card only accounts to avoid NSF fees, hardly any FIs offer transaction accounts assuring the certainty of no returned check or ACH fees ever.  It is fair for a consumer to request such an account with the certainty of no overdraft fees ever to avoid any surprises, not even return check charges, and such consumers are willing to pay a competitive account fee.  Such accounts are be "return-all" for any NSF item presented, check or debit, but set up as no NSF fee charged.

For such account holders where an FI knows no overdraft fees will occur, the primary reason checking accounts get charged off, they can profitably offer the overdraft limit current on their systems as a Reg Z loan instead with digital lending technology today.  They are taking little risk beyond what they do now with the amount being the overdraft limit on their system for overdraft coverage.  They are just delivering the funds as a loan rather than as an overdraft.  

The relationship is profitable for the FI, efficient to deliver with digital technology, and a superior experience for customers for accessing small loans without a credit score and benefiting from a "safe" checking account with no overdraft fees ever.  Further, such a relationship offers customers without any credit the opportunity to establish a credit score in as little as three months with a small loan.  Finally, such account relationships will be “return-all,” opposite leaving the choice to the FI to pay or return an NSF item as happens today.  Instead, the decision is the customer’s choice whether they want to use their line of credit to pay an item or not.   And FIs can still earn fees for overdraft services from customers who want to avoid a "return-all" account and have any overdraft mistakes paid rather than returned.