Low income and no credit loans from the FDIC.

More banks are offering small loans to low- and moderate-income borrowers through a program sponsored by the federal government FDIC. The new program was created to show how banks can profitably offer affordable, low interest rate loans to families as an alternative to high-cost credit products. It was intended to provide borrowers a more affordable option rather than using payday lenders, high interest rate personal loans, and fee-based overdraft protection.

The new program is tailored towards the high number of people in low-income ranges that need small-dollar loans to help them deal with a hardship. The money can be used to pay for bills, education, to start a businesses, or other expenses. If they meet certain criteria that are set by the government and their lender, then they can get a loan.

There are 31 banks in 26 states offering the product from the FDIC, including institutions in Texas, Illinois, and Louisiana. Other lenders may also provide these loans over time. Find a listing of the banks below.

Amarillo Bank is one of those that is participating in the Federal Deposit Insurance Corporation (FDIC) program. They are offering short-term, small-dollar, low interest loans of under $2,500 to low-income Americans, many of whom that apply have poor or no credit scores. The product can be an important source of funding to those that need access to financing.

Amarillo Bank has offered various financial products, including small-dollar loans for decades, but most of the lenders in the new program first started offering them as part of the new government FDIC program. In total, the banks collectively have offered tens of millions of dollars in loans under $2,500 to hundreds of thousands of consumers.

The primary goal of the FDIC is to assist the estimated 80 million to 100 million so called under-banked Americans avoid overdraft programs or payday loans. It can be an affordable source of credit to these groups. They want these Americans to stop using products that may provide them with quick cash, but carry very high fees or triple-digit interest rates.





According to the FDIC, the goal is to show low and moderate income Americans that there is a much less expensive alternative to high priced payday loans. This program can also assist consumers that either have no credit history or that have poor scores. Also, the organization wants banks to know that small-dollar borrowers represent an attractive new customer base to the banks, while retaining other borrowers, as the loans are still profitable to the lenders that issue them.

How much can I borrow at what rate?

Banks and institutions like Amarillo Bank offer small-dollar loans to customers of under $2,500 or less. The  average term is nine months, however they can be extended if and when needed. The interest rate will usually range from 14% to 18% on an annual percentage rate, which is an interest a rate significantly lower than what individuals pay on payday loans or when they over draft their accounts.

Another benefit to these federal government sponsored low cost, low income loans is that when consumers take on these small-dollar products and pay it back on time, they will improve their credit scores and ratings. This will allow individuals to re-enter the mainstream lending market over time. Compare that to a payday loan, in which there is no benefit to your credit score even if you pay it back on time. So the FDIC is providing a way for people to build or repair their credit scores.

What is an overdraft fee?

Banks make billions of dollars from people in so called overdraft fees. With this type of overdraft protection that most people have, consumers can overdraw their savings or checking accounts and banks will cover the transaction with fees as large as $35 for each overdraft. This will be billed to the consumer regardless of the size of the draw or how much over their limit they went.

According to the FDIC's, a large percent of bank profits are from overdraft fees, in total about $35 billion in annual fees for the whole industry. In addition, what happens is that these fees are not paid by customers who make a mistake an accidentally overdraw their account, but the banks make billions of dollars from low-income consumers who intentionally overdraw their accounts. Many are out of options and they do this as a type of short-term loan because they can't cover their basic living expenses and they take out more money to help pay their bills. In effect, overdrafts are a line of credit or type of short term loan that people are using to just pay their everyday bills. Find how to settle debts and overdraft fees.




How does this small dollar and low income loan compare to high interest payday loans?

There are over 23,000 payday lender outlets across the country, and all together they make up the $70 billion payday-loan market. Unfortunately what all too often happens is that low and moderate income individuals, and other who may be struggling, turn to payday lenders. There are also many cases in which immigrants or even active military personnel turn to this type of financing. While they can get money, the lenders will provide them with this cash for a large fee.

For example, in the state of California, a consumer can write a check to a payday loan lender for $300 to receive a two-week salary advance. These loans generally need to be paid back when the borrower receives their next paycheck. What the $300 covers is the following. It breaks down into a $45 fee for the lender and a $255 loan for the borrowers, which the borrower must repay when he gets his work payment. The bottom line is that equals a 460% annual percentage rate fee for the payday loan.

Unfortunately what typically happens in these cases is that the consumer pays off the short term payday loan by taking out another payday loan, and they end up paying another $45 fee. This can create the dreaded cycle that can be hard to break. The industry calls this rolling over the loan, and the consumer can pay hundreds or thousands of dollars in fees.

The fees for these salary advance loans from payday lenders are significantly higher fees than what banks under the FDIC small-dollar program charge for their loans. One bank in the program, Progresso's, offers small loans with significantly lower interest rates. This bank charges a fairly small origination fee and interest fee that when combined, equate to about a 36% annual interest rate.

Since it started issuing these loans as part of the FDIC program, Progresso Financiero has made over 30,000 loans averaging about $900 each. The banking institution, with 17 locations and 120 employees, offers borrowers funds ranging from $250 to $2,500 for an average 9-month term, and at a much lower interest rate than payday lenders.





Banks participate in the small dollar loan program

The list of banks and financial institutions includes the following. If your lender is not listed you can still inquire with them if they offer this FDIC product. Or another option is to just ask a lender in your community, including local credit unions, even they provide lower income borrowers any access to more affordable loans. Hundreds of national and regional companies try to provide some form of financing to anyone that needs it.

Small-Dollar Loan Pilot Program Participants


Amarillo National Bank  Amarillo, TX

Armed Forces Bank  Fort Leavenworth, KS 

Bank of Commerce  Stilwell, OK 

BankFive  Fall River, MA 

BBVA Bancomer USA  Diamond Bar, CA

Benton State Bank  Benton, WI 

Citizens Trust Bank  Atlanta, GA 

Community Bank of Marshall  Marshall, MO

Community Bank - Wheaton/Glen Ellyn  Glen Ellyn, IL 

The First National Bank of Fairfax  Fairfax, MN

First United Bank  Crete, IL 

Kentucky Bank  Paris, KY

Lake Forest Bank & Trust  Lake Forest, IL

Liberty Bank  New Orleans, LA

Liberty National Bank  Paris, TX 

Mitchell Bank  Milwaukee, WI 

National Bank of Kansas City  Kansas City, MO 

Oklahoma State Bank  Guthrie, OK 

Pinnacle Bank  Lincoln, NE 

Red River Bank  Alexandria, LA 

State Bank of Alcester  Alcester, SD

State Bank of Countryside  Countryside, IL

The Heritage Bank  Hinesville, GA

The Savings Bank  Wakefield, MA

Washington Savings Bank  Lowell, MA

Webster Five Cents Savings Bank  Webster, MA

White Rock Bank  Cannon Falls, MN 

Wilmington Trust  Wilmington, DE 

If there is not a lender near you, then credit unions can be an alternative. Many of these non-profits also have information on loan programs that can help low income families or that can assist those borrowers with limited or no credit scores. A source of referrals is the National Credit Union Administration, and find a location here http://mapping.ncua.gov

The agency has information on lenders that may offer FDIC approved products, low cost loans, and other forms of financial support. NCUA is involved in coordinating services as well as assistance programs nationwide, and all products provided meet FDIC as well as other federal government guidelines. One product available locally is known as PALS, or Credit Union Payday Alternative Loans and Savings. It combines financial literacy and gives families the ability to borrow money at a low interest rate. The program is for people that lack credit or have poor scores from one of the rating bureaus. More on loans from PALS.





Credit score is key

If someone takes out a salary advance loan from a payday lender, the fees and interest they will pay back over time does not benefit them. Any money they pay back to the payday lenders and banks for overdraft protection do not help build or improve their credit scores or ratings. In today’s day and age, a failure to build, or at least improve, a credit score limits low-income individuals' ability to advance economically. It can prevent them from even getting a job in certain cases. Find other ways to improve your credit rating.

More banks that offer these small dollar loans have started to set up offices in low- and moderate-income neighborhoods and districts, where foot-traffic will drive more customers. In addition, the FDIC said that many participating banks and lenders are working with non-profit institutions, charities, and community organizations and agencies to help identify potential borrowers who might benefit from these source of affordable loans and they are encouraging them to apply.

Amarillo Bank calls the program a success. The bank has offered almost 2,000 loans of under $1,000 -- with a total volume of $1.4 million -- to thousands of low- and moderate-income individuals in their service territory. Not only are borrowers getting the money they need, but the loans are profitable to the bank as well, as the small dollar amounts provided have the same default rates as other categories of loans. So they benefit both the lender and the consumer. Another benefit is that the small-dollar borrowers often become long-term customers of the banks.






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