Bank of America will begin offering small short-term loans to cash-strapped customers, a move that could disrupt the short-term loan market.
The loans, called Balance Assist, will be capped at $ 500 and will only be available to people who have had a checking account at the bank for at least one year. The rollout will begin in a handful of states to be announced in January 2021 before expanding to the rest of the country early next year, the Charlotte-based bank announced Thursday.
The move makes Bank of America, with its tens of millions of customers, one of the largest financial institutions to have a low-cost consumer loan.
It is a space historically dominated by payday lenders and other means of consumer finance, which have earned a seedy reputation for their high fees. Regulators have urged banks to make small dollar loans for years, and in May they issued guidance urging banks to help consumers affected by the COVID-19 pandemic.
Still, before the Bank of America announcement, among the big banks, only US Bank and KeyBank offered the kind of small dollar loans that regulators were looking for even though customers indicated they wanted the loans.
“Customers were telling us that they can’t move from one paycheck to another. So this is a bridge,” Steve Boland, Bank of America’s chief retail officer, said in an interview. The bank wanted all of its customers to do all their banking with the bank, he said, and not with higher-cost alternatives.