Small Dollar Loan Exam Procedures

Credit unions may need to make exceptions to their policies to assist members affected by the COVID-19 pandemic. Examiners should not criticize these exceptions, provided they are reasonable and do not violate the FCUA or consumer protection laws.

  1. Review the COVID-19 survey completed with credit union staff to determine the volume of the small-dollar loan program.
  2. Examiners should use their best judgment in determining the scope of the small-dollar loan program review. For example, if the small-dollar loan portfolio is small and performing satisfactorily, an extensive review may not be necessary. However, if the examiner identifies material concerns (high delinquency and loan losses or a high loan concentration in relation to net worth) during the scoping process, the examiner should expand the examination procedures to identify the cause of the concerns and determine corrective action. This would include reviewing:
    • Policies and procedures
    • Loans and shares download
    • Sample of small-dollar loan files
    • ALLL funding
    • Monitoring reports for risk limit compliance and delinquency and loan loss trending

Examiners should refer to Part 1 Loans - General Loan Review section of the Examiner’s Guide for more guidance on loan program reviews.

Credit unions should not limit the small-dollar loan program to members who are not working because of the COVID-19 pandemic. This approach will cause consumer financial protection compliance concerns. If the loan program treats applicants or prospective applicants differently on a prohibited basis, it is likely impermissible.

Even if there is no difference in treatment, if the loan program disproportionately excludes or burdens applicants or prospective applicants on a prohibited basis, it may also be impermissible.

Questions to Consider

  • What is the volume of small-dollar loans?
  • Has the credit union established appropriate loan policies and risk limits for the program?
  • Is the credit union within its risk limits?
  • What is the trend in delinquency and loan losses from the small-dollar loan program?
  • Does the ALLL methodology reflect funding for the small-dollar loans?
  • What is the volume of modifications, rewrites, or rolling of small-dollar loans?
  • Are there any consumer compliance complaints related to the credit union’s small-dollar loan program?
  • Does the credit union have sufficient resources (internal or third party) to collect on delinquent small-dollar loans?

Last updated on September 15, 2021