Small dollar lending necessary, Florida Banking Commissioner

From a recent interview with Drew Breakspear Florida’s banking commissioner, featured in American Banker;

As a former bank executive with stints at State Street (STT), First Nationwide Bank and Citibank (NYSE: C), he often interacted with regulators. So Breakspear, who became Florida’s top bank regulator in 2012, has tried to make his office more effective and efficient and to speak out for regulation that doesn’t stifle innovation or hurt smaller

banks.http://www.americanbanker.com/issues/179_34/do-banks-have-a-future-in-small-dollar-credit-1065713-1.html. Is there a way for banks to offer short-term small-dollar loans?”

If you look at the Pew Research numbers, 12 million people use a payday loan. For a lot of them, it is the only source of credit that they have. I tell a story about a conversation I had with someone. We were chatting and for some reason payday loans were mentioned. The person said, ‘I used a payday loan once.’ I said, ‘For how much?’ ‘$300.’ ‘How long?’ ’30 days.’ ‘How much did you pay?’ ‘$42.’ I said, ‘Didn’t you feel that was a lot?’ And the response was, ‘It was the only way I could feed my family next week. I would have paid $100.’

Getting rid of deposit-advance products may have been damaging. I’m always concerned about eliminating a pool of credit that may be the only source of credit for a segment of the population if you don’t have something better to replace it.

I constantly hear about how expensive it is. I don’t think people always understand the fixed-cost element. If you are doing payday lending, you have to have a storefront, utilities, staff. You have to fill out paperwork. When someone walks in for a $300 loan, there is a certain fixed cost. Let’s say it costs $20 to make a loan. I’m not saying that is the actual number. But let’s just say $20 on $300 is 6.6%. If it was a $3,000 loan, $20 is 0.6%. It’s the same fixed cost.

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