Small-Dollar Loans

Small-dollar lending generally consists of unsecured loans in amounts up to $5,000. Credit unions may offer small-dollar loans through open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans. Consumer demand for small-dollar credit generally increases during times of disaster or economic crisis.

Risk Management

The NCUA Letter to Credit Unions 20-CU-04, Responsible Small-Dollar Lending in Response to COVID-19, encourages credit unions to offer responsible small-dollar loans to members and small businesses facing hardship due to the pandemic. Where prudent, credit unions may ease new loan terms for affected borrowers. Small-dollar loan programs typically offer:

  • Unsecured loans in amounts up to $5,000
  • No payments required for up to 90 days
  • Maturities of 24-36 months

As with all loan products, there are risks to consider and mitigate. The NCUA, in collaboration with other federal financial institution regulators, issued a joint press release, Interagency Lending Principles for Offering Responsible Small-Dollar Loans, to address prudent risk management practices for responsible small-dollar lending. Credit union policies, risk management practices, and controls should generally address the following for small-dollar loans.

  • Structure—Loan amounts and terms that align with eligibility, underwriting, consumer protection laws, and affordability
  • Pricing—Loan pricing that complies with state and federal laws with returns that reasonably reflect the credit union’s risks and costs
  • Underwriting—Analysis of internal and external data to determine credit worthiness and manage credit risk effectively
  • Marketing and Disclosures—Clear, conspicuous, accurate, and customer-friendly marketing disclosures that comply with consumer protection laws and regulations
  • Servicing and Safeguards—Processes that aid members in successful repayment while avoiding debt cycling, such as timely and reasonable workout loans or restructuring balloon payment and lines of credit into installment loans

Last updated on June 30, 2020