Small Dollar Credit and Financial Health: A Policy Perspective

The Financial Health Network wrote this Policy Perspective that draws on our past small-dollar credit work to inform the conversation around recent regulatory actions.

For many years, there has been intense interest among regulators, legislators, financial institutions, and advocates in the regulation of small-dollar credit products. While there is no universally accepted bright-line definition of small-dollar credit, these are generally loans of under $1,000 used by borrowers to meet immediate liquidity challenges, as distinguished from loans to finance a planned purchase. Typically, small-dollar loans must be repaid over a very short period of time, such as 30 days or less, although there is no inherent reason why small-dollar credit must be extended on a short-term basis. Payday loans are the predominant form of small-dollar credit in the United States, although there are also small-dollar vehicle title loans, pawn loans, deposit advances, refund anticipation loans, and installment loans.