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Dreher Tomkies LLP
Attorneys at Law
2750 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telephone: 614-628-8000
Fax: 614-628-1600

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The Federal Deposit Insurance Corporation (“FDIC”) recently announced that it has selected an initial group of 30 banks to participate in a small-dollar loan pilot program. The two-year pilot program is designed to help the FDIC identify successful methods for offering affordable small-dollar loans that can be replicated by other financial institutions.

The FDIC previously issued Affordable Small-Dollar Loan Guidelines, which encouraged lenders to (i) minimize charges such as annual fees, membership fees, advance fees and prepayment penalties, (ii) structure programs in a manner that fosters reduction of the principal owed, (iii) ensure that the borrower has the ability to repay the loan, (iv) structure small-dollar loan programs to include a savings component and (iv) offer financial counseling and education to help borrowers become better customers. For the current pilot programs, the FDIC identified the key features to include (i) loan amounts of up to $1,000, (ii) payment periods extending beyond a single pay cycle, (iii) interest rates below 36 percent, (iv) low or no origination fees and (v) no prepayment penalties.

To encourage participation in this program, the FDIC has opined that if a participating institution establishes a successful small-dollar loan program consistent with the Affordable Small-Dollar Loan Guidelines, it will warrant favorable consideration by the FDIC under the Community Reinvestment Act as an activity responsive to the credit needs of the institution’s community. The FDIC also stated that programs transitioning low or moderate income borrowers from higher cost loans to lower cost loans would be considered particularly responsive to community needs.

The 30 participating banks are headquartered in 17 states with over 550 branches located in 27 states, and have total assets ranging from $20 million to nearly $10 billion. For a link to the FDIC Affordable Small Dollar Loan Guidelines, visit http://www.fdic.gov/news/news/press/2007/pr07052a.html.

Mike Tomkies