Providers of fast loans typically provide a small dollar, short-term alternative loan product to meet the need of underserved customers who may not have access to traditional credit products.  Fast loans provide a more affordable alternative to underserved customers utilizing higher cost credit solutions from many providers.  The FDIC and other regulatory agencies have been concerned that banks were not meeting the credit needs for un-banked and under-banked segments and welcome companies that provide a small dollar, short-term alternative loan product to meet the need of underserved customers who may not have access to traditional credit products.

Currently, federal legislation does not control non-traditional providers of fast loans, although the Consumer Financial Protection Agency will now regulate these entities.  A new head of the Consumer Financial Protection Agency was recently named.  This new agency has been holding field hearings.  A recent hearing was held in Birmingham, Ala on January 19th.  Members of the retail banking industry and several payday lenders joined a panel of industry representatives and provided testimony surrounding how the credit needs of under-banked consumers can be met in a fair and transparent manner.

• Fast loans lenders typically target customers who:
• Have established checking accounts and on-going direct deposit patterns
• May not have access to traditional credit products
• Require convenient access to short-term liquidity
• Currently use non-traditional credit sources to meet short-term financing needs
• Fast loans features typically include:
• Line of credit up to $1500
• Fees based on the amount advanced and term
• No credit qualification or underwriting required
• Single Payment Model or the ability for multiple installments
• Immediate access to funds once the account is activated

Customers open fast loans through various online websites. The customer completes a credit application and, if eligible, signs the appropriate documentation. The customer agrees to the terms and conditions and specifies an initial draw (advance) amount. The lender then generates the transactions necessary to open the account, take a draw on the account, and post a credit to the customer’s DDA account.

All fast loan providers must be mindful of their responsibility to partner with customers and seek an environment that encourages responsible lending and repayment.  It is imperative that fast loan lenders continue to listen to customers’ evolving requirements and iterate on developing services that meet their short-term financial needs and benefit them in their long-term efforts to build, or in many cases rebuild, their credit history.

Many lenders ensure that regulations are being correctly followed by vetting proposals with expert outside counsel.   Should the new Consumer Financial Protection Agency help to enacted legislation that would deem fast loans unprofitable or unsustainable, lenders typically have a rapid product exit strategy.

Banks of all shapes and sizes, both large and small, (US Bank, Wells Fargo, Fifth Third, Key, Regions etc) currently offer short term lending products with high costs. The banks typically report that charged off accounts increase, but at a lower rate than overdraft charge offs. Vendor data collected from a myriad of banks indicates that 97.7% of outstanding balances are repaid within 35 days of the last advance.