Preserving Innovation and Access to Credit Essential in the CFPB’s Small Dollar Rule

The following op-ed was published on The Hill website on March 3, 2015:

The_Hill

By Lisa McGreevy

There has been a revolution in financial technology and in the way consumers expect to conduct their personal business online.  The Internet has democratized communications, banking, and commerce in ways that are changing on a daily basis where the limits of innovation are only one’s creativity and ingenuity.

Long gone are the days when people drove to their local travel agent to book a flight or had to risk the reliability of the U.S. Postal Service to pay their bills on time.

Financial technology companies are also innovating to meet the changing needs and demands of consumers, particularly in online lending which is now an $18 billion industry serving the 17 million consumers who use the internet to access short-term credit.  Consumers, especially media- and tech-savvy millennials, are increasingly using mobile devices to access the short-term credit they need to meet an unanticipated expense or simply to help them through the peaks and valleys of life.

The Consumer Financial Protection Bureau (CFPB) will soon release its concepts for a rule on the small dollar lending industry.  In keeping with its slogan as the “21st Century agency,” the Bureau must recognize the realities of conducting financial transactions through the Internet as it develops its rule, including:

  • Don’t stifle innovation.  Any rule should not discourage innovation or disadvantage the marketing, origination or servicing of loans via the Internet.  For example, any underwriting requirements must be consistent with Internet realities, and the rule must not require excessive paperwork that other financial service providers, such as credit card companies, are not required to provide.

Financial technology companies already use sophisticated underwriting and risk management analytics to ensure customers are willing and able to repay the loan.  These analytics far exceed the data points used by traditional credit bureaus.

  • Preserve consumer convenience.  Consumers must continue to be able to authorize recurring payments over the Internet for online loans.  Millions of consumers use the convenience of recurring payments to provide them with the peace of mind that their bills are being paid on time.  Federal law currently allows consumers to rescind this authorization at any time so they’re protected.
  • Recognize the realities of the Internet.  Determining the ability to repay must be consistent with Internet technology, and standards should not be rigid and overly prescriptive.  A consumer’s ability to repay encompasses several distinct attributes: willingness to repay, financial capacity to repay, maturity and responsibility in managing competing obligations, and ultimately credit worthiness as measured by reference to a consumer’s past performance on similar obligations.

Additionally, any standard must allow for an economic rate of return that considers the cost of underwriting, verification and servicing, as well as fraud and credit losses.

Members of the Online Lenders Alliance (OLA) also support further protections for consumers, many of which are already contained in OLA’s best practices, to ensure loan terms are clear and flexible and their personal data is kept safe.

Responsible, legitimate online lenders, like the members of OLA, welcome the CFPB’s rule because we seek federal clarity on the policies governing consumer lending over the Internet.  We’re fully engaged in the CFPB rulemaking process and are looking forward to working on a rule that encourages innovation to meet the growing consumer demand for credit over the Internet.

McGreevy is president and CEO of the Online Lenders Alliance, representing the growing industry of companies offering loans online. OLA member companies abide by industry-leading Best Practices and Code of Conduct to ensure their customers are fully informed and fairly treated.

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