This is a guest post by Lisa McGreevy, President and CEO of the Online Lenders Alliance.
Pundits in Washington have suggested that the Consumer Financial Protection Bureau’s sudden rush to finalize their Small Dollar Rule is fueled by Director Richard Cordray’s desire to run for public office. If so, that would be a shame. This policy, which will affect millions of consumers, is too important not to get it right.
So important, in fact, that 1.4 million Americans took the time to write the agency to express their views, offer ideas, and share personal stories about how such a rule would impact them. Were the Bureau to cavalierly move ahead without careful consideration of these viewpoints, it would be a disappointing let down of those they are supposed to protect. This is the type of “Washington knows best” attitude that has led many Americans to become disillusioned with their government.
A look at the statistics shows why we cannot allow politics to drive bad policy. Last year, the Federal Reserve published a survey showing that 47% of Americans can’t afford to pay an unexpected $400 expense. When their car breaks down, or they need to repair a broken water heater, nearly half of Americans have no choice but to borrow money to fix it. For the 100 million Americans who have no credit or imperfect credit, the options are bleak. Banks and credit unions often won’t lend to them, and research shows 64% of Americans can’t borrow $500 from family or friends.
Every American, even those with less-than-perfect credit, deserves the security of knowing they have access to a trustworthy lender when they need money to meet unexpected, unavoidable expenses. Since subprime consumers are locked out from so many options, where can those who need short-term help turn when they need money quickly?
Currently, they rely on regulated, licensed lenders committed to serving them fairly, responsibly and quickly. Online lenders, local loan companies, and community banks have developed credit products tailored to the needs of working people who don’t have perfect credit, including the short-term loans they need to cover an unexpected expense and move forward.
The members of the Online Lenders Alliance (OLA) are among those who are proud to serve these Americans. And, unlike politicians and political activists, OLA member lenders understand the needs of their customers and how to serve them. As market-leading fintech innovators, they have developed sophisticated technology that enables them to fairly and appropriately underwrite small loans to consumers with limited or damaged credit records. Short-term loans are often the first step for consumers, who our membership is able to eventually serve with longer-term loan products at lower rates.
Ill-conceived regulations rushed into implementation threaten to cut off access to these short-term loans. According to a CFPB analysis, the Small Dollar Rule could gut over 50% of the credit available in the market today.
To be very clear, small dollar lenders are not against regulation; we strongly support enforcing rules that identify and punish harmful lending practices. In fact, OLA members have developed a rigorous set of mandatory standards to ensure customers are treated fairly, and that loan terms include clear disclosures and understandable repayment terms. OLA and its members work closely with state legislatures and federal agencies to create smart, effective regulations that protect consumers while preserving their access to high-quality credit and allow for innovation.
It seems that some politicians, unelected bureaucrats, and activists in Washington believe they know what’s best, even after hearing directly from the people affected most by their policies. Millions of consumers expressed their concerns about the CFPB’s new small dollar regulations, and those voices deserve to be heard.
And that’s why we’re very concerned about rumors that future candidate Cordray and his political supporters are rushing to issue rules that will cut off a vital source of credit for millions who have nowhere else to turn. Let’s let facts, consumer input and experience drive this process, rather than political aspirations.
Lisa McGreevy leads the growth of the Online Lenders Alliance – the association for the growing industry of fintech companies who make and facilitate loans over the internet. Lisa has a deep background in public policy and financial services, having served in leadership positions with the Financial Services Roundtable, Managed Funds Association, and the Conference of State Bank Supervisors.