What we can learn from the small dollar loan initiatives in the US when addressing the short term credit needs of people in financially vulnerable circumstances
Through our work to increase access to fair and affordable financial products and services for people in financially vulnerable circumstances, we’ve been learning about the successful small dollar loan programme in the US.
This banking-led initiative has seen large US banks, credit unions and regulators work together to create the conditions for lenders to responsibly offer sub $1,000 loans to millions of people who were previously financially excluded, or who relied on expensive payday lending.
Benefits for both consumers and lenders
- Since 2020, the small dollar loan programme has unlocked over $800m of loans issued to more than 2 million borrowers[i]
- Small sums, on average $500, are being repaid in three or four instalments with overall repayment rates within acceptable tolerance levels
- Customers are benefiting from fairer alternatives to much higher cost lending and greater access to short term credit to help build their financial resilience
- And lenders are tapping into a significant market demand and viably serving a wider range of consumers in the communities they serve
We’ve published a paper to share insights and early learnings from this initiative which looks at regulatory action and wider success factors, as well as bank engagement and how the market has developed in the US.
Exploring how a similar small sum loans scheme could be adapted for the UK
In recent research from Ipsos for Fair4All Finance[ii], one in four GB adults aged 18-75 said their household could not currently afford to pay an unexpected £500 expense without borrowing. The same survey found that 8% (of GB adults aged 18-75) had borrowed more than they needed to from a bank or other financial lender because the minimum starting loan was too high.
We know credit isn’t the answer for everyone. However, when responsibly lent to people who can afford to pay it back, a small, short term loan can help people to meet unexpected costs and smooth volatile incomes. This can help people build their financial resilience and prevent financial bumps in the road turning into a long term crisis.
In sharing these insights we’re keen to explore whether a version of small dollar loans could work in the UK ecosystem, to help match an increasing need with appropriate supply.
[i] Loans issued according to limited publicly available data (therefore likely to be an underestimated of the true amounts), including:
American Banker, October 2024, Banks fight payday lenders with cheaper small-dollar loans: ‘Since launching its product in 2020, Bank of America has extended 1.6 million Balance Assist loans for more than $700 million, according to a spokesperson.’
Wells Fargo, 2023, Annual Report: ‘In the fourth quarter of 2022, we launched Flex Loan (…) Customer response continues to exceed our expectations, and we originated over 350,000 loans last year.’
Banking Dive, June 2021, Ally, Huntington launch efforts to curb overdraft fees: ‘We launched it with $25 million as an objective, and we’re rapidly closing into that.’
[ii] Ipsos UK conducted an online survey amongst a quota sample of 4,132 adults aged 18-75 in Great Britain. All provided explicit consent for data to be collected regarding their household and personal finances. Fieldwork was conducted online between 4th-16th April 2025.Data have been weighted to the known representative proportions for age and working status within gender, and for social grade, Government Office Region, education (graduate/non-graduate), ethnicity (white/minority ethnic) and household size, to reflect the offline population of GB adults aged 18-75. All polls are subject to potential sources of error.
