As we enter 2020, we have an important opportunity to reflect on the financial wants and needs of American consumers in the new year and beyond. Small-dollar lenders work to meet these wants and needs in communities across the United States; however, bad actors committing fraudulent acts and scamming consumers in Utah or elsewhere paint our entire industry in a negative light. Contrary to what critics claim and what the media reports, these lenders are the exception, not the norm. Regulated, responsible lenders offer safe, reliable products that serve as an important source of credit for millions of Americans, many of whom are not served by traditional banks.
Consumers deserve access to a variety of financial products, including small-dollar loans, that support a wide range of credit needs. According to the Federal Deposit Insurance Corporation, or FDIC, more than 1 in 5 Americans were unbanked or underbanked in 2018, and in 2017 the Board of Governors of the Federal Reserve found that 40% of Americans either could not cover or would struggle to cover an unexpected expense of $400.
One of the many reasons millions of Americans choose to use small-dollar loans every year is to bridge financial gaps such as these. Small-dollar loans are often the least expensive option for consumers, particularly compared to bank fees — including overdraft protection and bounced checks — or unregulated offshore internet loans and penalties for late bill payments.
Our organization, the Community Financial Services Association, represents regulated consumer lenders, which offer a variety of small-dollar credit products in communities across the country and, increasingly, online. Our members understand the importance of access to safe, reliable sources of credit because they see Americans’ need for credit up close. All of our members are licensed and regulated in the states in which they operate, and must abide by a mandatory set of best practices, which holds member companies to a high standard of responsible lending and help consumers make informed financial decisions. These include privacy protections and an extended repayment plan — offered at no charge — for borrowers who may need more time to repay their loan. Thanks largely in part to our best practices, our member companies enjoy great relationships with their customers and receive high satisfaction scores from our borrowers. We are proud to uphold these high standards and believe they should serve as a model for the entire industry.
Unfortunately, recent developments in Utah have demonstrated that there are still bad actors out there who deceive borrowers, partake in unlawful business practices and tarnish the reputation of the entire small-dollar credit industry. Their actions do not represent the actions of legal, licensed lenders around the country who provide a vital credit to individuals and local communities and we forcefully condemn their tactics and practices.
Ironically, recent efforts by the Consumer Financial Protection Bureau, or CFPB, to overregulate responsible and law-abiding small-dollar lenders would do nothing to stop these bad actors and give a free pass to illegal actors operating in the shadows. In fact, such proposed regulations stand to push licensed, regulated lenders out of business — which will only leave a vacuum that these unscrupulous lenders would be all too glad to fill.
The unmistakable demand for small-dollar loan products will continue to exist even if the products themselves are no longer available. In 2020, the CFPB and Congress should work to protect access to licensed and regulated lenders and focus on tackling the very real problem of unlicensed, unregulated, illegal or otherwise unscrupulous lenders trying to take advantage of Utahns.
D. Lynn DeVault is the chairman of Community Financial Services Association of America.