Short answer: on May 20, 2020, the Federal Reserve, the FDIC, the NCUA and the OCC issued the “Interagency Lending Principles for Offering Responsible Small-Dollar Loans” to encourage banks, savings associations and credit unions to offer “responsible small-dollar loans to customers for consumer and small business purposes” (joint press release, read October 30, 2026). Whether your own bank or credit union offers one is up to it, so ask. This is general information, not legal advice.
What the principles cover
- Loan types: the principles “cover a variety of small-dollar loan structures that may include open-end lines of credit with applicable minimum payments or closed-end loans with appropriate shorter-term single payment or longer-term installment payment structures” (Interagency Principles, May 2020).
- Who: they “do not apply to financial institution affiliated non-bank lenders or other non-bank lenders”, and they “do not address financial institution overdraft programs or credit cards” (Interagency Principles).
What the agencies called responsible
The principles say responsible small-dollar loan programs generally reflect these characteristics (Interagency Principles):
- “A high percentage of customers successfully repaying their small dollar loans in accordance with original loan terms, which is a key indicator of affordability, eligibility, and appropriate underwriting”
- “Repayment terms, pricing, and safeguards that minimize adverse customer outcomes, including cycles of debt due to rollovers or reborrowing”
- “Repayment outcomes and program structures that enhance a borrower’s financial capabilities”
Policies and practices would generally address these five areas, summarized from the same document:
| Area | What the principles say |
|---|---|
| Loan structures | Amounts and terms that support “borrower affordability and successful repayment of principal and interest/fees in a reasonable time frame rather than reborrowing, rollovers, or immediate collectability in the event of default” |
| Loan pricing | Pricing that complies with state and federal law and reflects returns “reasonably related to the financial institution’s product risks and costs” |
| Loan underwriting | Analysis using internal or external data, “such as deposit account activity”, to assess creditworthiness |
| Marketing and disclosures | Information given “in a clear, conspicuous, accurate, and customer-friendly manner” |
| Servicing and safeguards | Help with repayment while avoiding cycles of debt; for customers in distress, this may include “timely and reasonable workout strategies”, such as restructuring single payment loans or lines of credit into installment loans in appropriate circumstances |
Questions to ask your bank or credit union
- Do you offer a small-dollar loan or line of credit to account holders, and what are the eligibility rules?
- Is it repaid in one payment or in installments, and over what term?
- What is the APR, and what fees are charged? Ask for the Truth in Lending disclosure before you sign.
- Will you look at my deposit account history when you decide?
- What happens if I cannot pay on time? Can the loan be restructured into installments?
- Is the payment taken automatically from my account?
Compare with other small loans
- Payday alternative loans (PALs) from credit unions
- Personal loan vs payday loan
- Overdraft fees vs a small loan
- Credit union vs online lender personal loan
A $2,000 example, only for the math
This example is only for the math; small-dollar loans can be smaller and shorter. It shows $2,000 over 24 months at the Federal Reserve’s August 2026 averages: 11.90% APR for 24-month personal loans and 22.36% for credit card plans (G.19). Use the APR and term your bank or credit union quotes to run your own numbers.
| Option | Monthly payment | Interest | Total paid |
|---|---|---|---|
| Personal loan at 11.90% | $94.05 | $257.20 | $2,257.20 |
| Credit card at 22.36% | $104.11 | $498.64 | $2,498.64 |
$94.05 x 24 = $2,257.20, and $104.11 x 24 = $2,498.64. Your rate depends on your credit and the lender. Before you add a payment, see how to budget for a loan payment.
Checklist
- Ask your own bank or credit union whether it offers a small-dollar loan.
- Get the APR, fees, term and payment in writing before you sign.
- Prefer installments you can pay without reborrowing.
- Ask what help is available if you fall behind.
- Compare a credit union PAL and your other options.
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Sources
- Federal Reserve, FDIC, NCUA and OCC joint press release: Federal agencies share principles for offering responsible small-dollar loans (May 20, 2020)
- Interagency Lending Principles for Offering Responsible Small-Dollar Loans (May 2020), PDF
- Federal Reserve: G.19 Consumer Credit (released October 7, 2026), terms of credit, August 2026: credit card plans and 24-month personal loans
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.