The Online Lenders Alliance is committed to using fact-based, unbiased research that supports the growth of the financial services industry while appropriately protecting consumers from fraud and abuse and not limiting their access to credit.
Online Lending: Fintech Innovation Drives Credit Inclusion
OLA’s latest white paper, highlights how innovation in the financial technology space is playing a role in driving credit inclusion for the approximately 100 million Americans who currently fall into the non-prime credit category.
The report details the vital role that online lending plays in the economy and in individual consumers’ lives, and is guided by the idea that increased innovation, access, and inclusion should be societal goals. When innovation and access are nurtured as key economic values, online lending flourishes. This, in turn, allows more people to be included in the economic activity of the United States and pursue the American Dream.
Global Study Finds Negative Effects – Rate Caps Go Too Far
Lower credit supply and loan approval rates for small and risky borrowers are among the negative results researchers found when they studied a variety of interest rate restrictions around the globe.
The World Bank’s Policy Research Working Paper by the Finance, Competitiveness and Innovation Global Practice undertook case studies that showed “while some forms of interest rate caps can indeed reduce lending rates and help to limit predatory practices by formal lenders, interest rate caps often have substantial unintended side effects.” The side effects included: increases in non-interest feeds and commissions; reduced price transparency; lower number of institutions and reduced branch density; and adverse impacts on bank profitability, in addition to the lack of access for smaller and riskier borrowers.
The paper goes on to discuss alternatives to reduce the cost of credit, given the potential negative impact of rate caps.
Full Study: Interest Rate Caps: The Theory and The Practice