Bank of America (BAC 0.50%) checking account customers will soon be able to take out small-dollar installment loans of up to $500, to be paid back in three months.
The Consumer Financial Protection Bureau (CFPB) recently issued the bank a no-action letter for the proposed product, providing "increased regulatory certainty" that the CFPB will not issue an enforcement action to Bank of America for the product.
This ultimately makes Bank of America the first major bank to receive a no-action letter about small-dollar loans, according to American Banker.
Regardless of the amount of the small-dollar loan, customers will be charged a $5 flat fee. The loan will not have an annual percentage rate (APR) of more than 36%, and there will be no late-payment or pre-payment fees, according to Bank of America's application with the CFPB.
APR measures not just the interest on the loan, but also all fees and other costs associated with the loan.
The application also claims that this kind of small-dollar product is much better than other payday loan products available in the market, which can carry APRs between 300% and 500%.
Bank of America's new small-dollar program comes after five financial regulatory agencies in May encouraged financial institutions to provide customers with responsible and fair small-dollar loan products .