California Senate Assembly Banking and Finance Committee
“The State of Consumer Lending in California”
Statement of Lisa McGreevy
President & CEO
Online Lenders Alliance
The Online Lenders Alliance (OLA) represents the growing industry of companies offering online consumer loans and related products and services. OLA members include online lenders and vendors and service providers to lenders, such as consumer reporting agencies. OLA member companies have agreed to comply with the organizations extensive Best Practices and Code of Conduct.
As your committee knows, there is rapid growth in financial transactions moving online and to our smartphones. The same trend is true for consumer lending. Consumers have come to the realization that online lenders are offering a product that is accessible, obtainable, and affordable. Our industry is pioneering advances in technology, software, and underwriting so that lenders can provide smarter, more cost effective credit options to consumers.
Online loans represent over 1/3 of the consumer credit industry, servicing over 17 million individuals. Many of the new products and innovations in small dollar credit are happening right here in California, the laboratory where technological innovation and financial services come together to enhance the consumer lending experience.
Like any growing industry, we are confronting the challenges of regulation in this rapidly changing, dynamic, new world of financial innovation. The CFPB is expected to release a rule which is intended to focus regulation on both short term and long term consumer credit loans.
We have engaged with the CFPB to help them understand the necessity of availability of credit, how the online consumer marketplace functions, and how technology and innovation can contribute to availability, growth, and access to credit. OLA encourages the CFPB to develop common sense regulation that allows consumers to continue to benefit from the innovative technological advancements that have been created by our members in the online lending industry.
We are concerned that the proposal released for discussion during the Small Business Regulatory Enforcement Act (SBREFA) process does not take into account a number of critical issues.
For example, we believe that the proposed standard and its document collection, verification, and retention requirements will needlessly require consumers to undertake great effort and expense of building a budget and determining a residual income, without any corresponding benefit to the underwriting process. OLA members have developed sophisticated, real time analytics that leverage key data including income, debt payments, and recent consumer financial behavior to determine a customer’s ability and willingness to repay a loan. By doing so, our members have increased access to consumer credit in a world that has become undeniably more digitally interactive. In order to determine the effectiveness of these underwriting models, we have proposed that the models be subjected to CFPB review in order to better the product for our consumers.
Additionally, we ask that the proposed rule not disadvantage the origination or servicing of loans over the internet, such as requiring the collection and verification of paper documents. The CFPB must remove itself from a previous era and recognize the consumer advantage in a digitalized lending system. Requiring a statement of wages is an outdated and unreliable way of income verification, as it is quite easy to generate a fake pay stub. Simply look at Bing or Google and see how easy it is. By forcing consumers to create a paper trail and submit hands on documents, the CFPB is putting a considerable amount of consumers at risk of not being able to obtain a loan.
The Online Lenders Alliance looks forward to further conversation with you, the CFPB, and anyone else who is interested in advancing the online lending industry for the betterment of consumers. Together we have the chance to change consumer access to credit in a way that is both safe and effective. Thank you for the opportunity to present in front of you today.