Give Nonbanks Credit – and More Power to Fill Lending Void
Wednesday, September 19, 2012
Posted by: Heather Behrmann
The following op-ed was posted on the American Banker website on September 19, 2012.
By Lisa McGreevy
Last week the Federal Deposit Insurance Corp. confirmed what we, in the
short-term lending industry, have been saying all along: Since the
global financial crisis, consumers have increasingly relied on nonbanks
to manage their finances.
than one in four households – 28.3% – are either unbanked or
underbanked, and conduct some or all of their financial transactions
outside the mainstream banking system, according to the results of the
FDIC's 2011 National Survey of Unbanked and Underbanked Households.
be clear, that's nearly 12 million households that do not use banks and
another 24 million households that have a bank account but also use a
nonbank financial service, such as prepaid debit cards and short-term
The Great Recession has truly changed today's economic landscape in ways we are only beginning to discover.
learned that the typical American family lost nearly 40% of its wealth
from 2007 to 2010. Yet, we still go to work, we still get our children
ready to start school, we still have to put gas in our cars and we still
have to put food on the table.
But what happens when these
families do not have the cash to fulfill their obligations? A recent
study by the National Bureau of Economic Research revealed that nearly
half of American consumers cannot access $2,000 in 30 days to meet an
So where do they go? Many nonbank lenders are trying
to step into the market to offer innovative credit products that satisfy
the dramatic change in consumer behavior. Unlike banks, these nonbanks
have their own money at risk, not taxpayer dollars. They do not take
deposits – they only aim to make credit available.
been quick to incorporate technology because they know that mobile bank
users will double in the next five years and reach 108 million by 2017,
accounting for almost half of all bank account holders in the U.S.
a result, companies operating in in the alternative financial service
space aregrowing. They have been keeping tabs on the changing financial
landscape and tailoring online credit products to fill the widening
gaps left by banks.
However, under the current myriad of state
regulations, nonbanks are trying to meet consumer demand with one hand
tied behind their backs. It's time that all of us – policymakers,
bankers, non-bankers, Congress, state legislators – take a wholesale
look at how we can work together to truly unshackle the innovators who
want to bring new products to market.
We can start by seriously
considering the bipartisan Consumer Credit Access, Innovation and
Modernization Act. The legislation will establish a federal charter that
clearly defines a set of transparent national standards, allowing
lenders to provide more credit alternatives with lower costs as well as
flexible payback periods and loan amounts. It will also offer millions
of Americans the kinds of financial options that will help them build
credit for future banking alternatives.
operating under a federal charter will have to comply with federal laws
and regulations applicable to other bank lenders, including the consumer
protection authority of the Consumer Financial Protection Bureau.
regulators truly want to make safe, affordable, and innovative credit
options available to millions of under- and-unbanked Americans, the
Consumer Credit Access, Innovation and Modernization Act will do just
Lisa McGreevy is president and chief executive of the
Online Lenders Alliance, a professional association for companies that
provide access to short-term, small-dollar loans via the Internet.