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The Compass Guide to Small-Dollar Credit

November 24, 2014

Access to high-quality small-dollar credit is a key component of a successful financial life for many Americans. Millions of people use small-dollar credit products every year; in 2012, consumers spent an estimated $41.2 billion on such products. Having the ability to borrow relatively small sums, on reasonable terms, can help individuals weather a financial shock, smooth income fluctuations, build a positive credit history, and facilitate a wealth-building purchase.

However, millions of Americans do not have access to small-dollar credit or only have access to high-cost, lowquality small-dollar credit products that too often lead them into a cycle of repeat usage and mounting debt. The Center for Financial Services Innovation (CFSI) believes the opportunity and need are great to improve the marketplace for small-dollar credit. Well-designed products have the potential to help people turn a momentary credit need into an opportunity to improve their financial well-being. Voluntary standards for quality in the small-dollar credit marketplace can facilitate innovation by providing a roadmap for lenders who seek to meet consumers’ credit needs in a responsible and sustainable way. With the support of the Ford Foundation and the Omidyar Network, CFSI convened a network of expert advisors to develop this set of specific guidelines and best practices for high-quality small-dollar credit as part of our Compass Principles program.