The Bureau noted that it approved Bank of America's application for a no-action letter in order to “further competition in the small-dollar lending space, which fosters access to credit while including important protections for consumers who seek small-dollar loan products.”
Bank of America’s Balance Assist program, which allows customers to borrow up to the maximum of $500 for a flat fee of $5, regardless of the total amount of funds being borrowed, was introduced in October. Bank customers are allowed to borrow in increments of $100 through the program, with repayments to be made in three equal monthly installments over a 90-day period.
The program was created in response to an increased consumer need for liquidity, with Kevin Condon, senior vice president for consumer-deposit and small-business products at Bank of America, saying that, “We want [customers] to stay within mainstream banking to do that.”
Balance Assist is set to launch in January 2021 in select states, with a rollout into remaining states throughout early 2021.
In its application to the CFPB, Bank of America said it developed Balance Assist with the goals of providing an affordable banking product for short-term liquidity needs, providing a digital only small-dollar product and expanding consumer access to credit.
Bank of America also stressed that the introduction of Balance Assist, which features an APR below 36% and no late payment or prepayment penalty fees, would “significantly improve the market options available to customers facing short term liquidity needs as, according to sources cited in the BPI Application, many payday loans currently available carry APRs of as much as 300% to 500%.”
The no-action letter indicates that the Bureau will not bring supervisory or enforcement action against Bank of America, provided that the bank provides the Balance Assist program as set forth in its initial application.
The CFPB, along with fellow regulators the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, earlier this year encouraged big banks to begin offering small-dollar loans in light of the economic impact of COVID-19.
The agencies said that the framework was already in place for banks to offer such loans responsibly, and that banks would be better doing so over other kinds of payday lenders.
“The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income shortfalls during periods of economic stress or disaster recoveries,” the letter said.