United States House of Representatives
Committee on Financial Services
Subcommittee on Financial Institutions and Consumer Credit
Thursday, February 11, 2016
Statement of Lisa McGreevy
President & CEO
Online Lenders Alliance
The Online Lenders Alliance (OLA) is the center for lending, technology, and innovation. OLA represents the growing industry of companies offering online consumer loans and related products and services. OLA members include online lenders 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 the Committee knows, there is rapid growth in online financial transactions including the rapid rise in the use of smartphones. Consumers understand that online lenders offer a product that is accessible, 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 the United States, the laboratory where technological innovation and financial services come together to enhance the consumer lending experience.
Over the past 5 years, 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 contribute to availability, growth, and access to credit. OLA has encouraged 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 SBREFA process does not take into account a number of critical issues and contains numerous unintended consequences such as:
- Document Collection will greatly increase costs and reduce competition
- It will severely restrict credit options for those who need it most
- It makes the online borrowing process unduly cumbersome and confusing for borrowers
- It contains loan limits that will restrict credit
Outdated Document Collection, Verification and Retention Requirements
The proposed standard and its document collection, verification, and retention requirements are overly prescriptive and require the same level of underwriting for a $500 loan as it would for a mortgage and fails to recognize the digital economy in which key underwriting data is available online and in real time. 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 to determine how well those models predict the risk of nonpayment, rather than prescribing a vague and unproven residual income test.
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.
Ensuring Consumer Access to Credit
Most importantly, we want to ensure that the 43 million Americans that use alternative financial methods have access to credit. We suggest these three policy solutions will assist in regulating the market, while ensuring borrowers will continue to have access to credit:
- Keep it simple for consumers to understand their credit options
- Focus on the Problem Borrower: Require lenders to provide the consumer a choice of an “off ramp,” a payment plan or a principal payment after 2 or 3 rollovers would help borrowers needing assistance without harming the consumers who use the credit as intended.
- Easy & Convenient Disclosures: Consumers may benefit from phone, email or text reminders that their payment is coming up, so long as the notifications follow existing laws protecting consumers from abusive or harassing collection practices. This will protect consumers from overdraft charges.
- Know Who You Owe: Borrowers should know how to notify their lender, preferably with a toll free number, so they can make arrangements if a payment needs to be delayed.
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 your time.