Americans Demand Short-Term Credit Options

AMERICANS NEED – AND BENEFIT FROM – A WIDE ARRAY OF SHORT-TERM CREDIT OPTIONS

Earlier this year, the Bureau of Consumer Financial Protection (BCFP) announced that it would re-examine its rule on short-term lending; if implemented, that rule stands to strip away access to regulated credit for the millions of Americans who count on short-term credit to help make ends.

Consumer Need Remains

Since announcing this positive and much-needed step, new independent research has that Americans continue to value cost-competitive, reliable and transparent short-term credit options. They need and want more options, not fewer, and a marketplace with options will provide a smoother path toward long-term savings and upward mobility.

• The Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2017” found that four in 10 adults would not be able to cover an unexpected expense of $400 or would do so by selling something or borrowing money.
• A team of researchers, led by a University of Georgia professor, found that short-term, small-dollar loan borrowers include consumers from middle- to- higher income households, demonstrating that the product appeals to a broad set of consumers and holds a clear place in the credit market.
• Similarly, a TransUnion study found that some borrowers who use “alternative loans” from non-bank lenders may be good candidates for traditional consumer credit products, and that traditional lenders are not meeting all consumer demand for credit.

More Providers Look to Enter the Short-Term, Small-Dollar Market

Amidst this mounting evidence of Americans’ clear need for non-bank credit options and the Bureau’s review of the small-dollar lending rule, it appears increasingly likely more financial services providers will look to offer short-term, small-dollar loans.

Recently, the Office of the Comptroller of the Currency (OCC) issued new guidance encouraging banks to offer short-term, small-dollar loans to help meet consumer demand. These guidelines reversed a 2013 policy that discouraged short-term lending by banks in the form of deposit advance products – guidance first withdrawn upon release of the Bureau’s final small-dollar lending rule. And just a day after release of the OCC’s guidance, the National Credit Union Administration (NCUA) made a similar move, proposing a new Payday Alternative Loan (PAL) program that would allow federal credit unions to increase loan amounts and offer longer repayment terms, to prompt more credit unions to offer short-term loans. And this April, Senator Kirsten Gillibrand (D-NY) introduced legislation to establish retail banking services at every U.S. post office, confirming the growing appetite for access to a variety of financial services.

Leveling the Regulatory Playing Field

Consumers benefit when they have a wide array of credit options to compare and select the service that is right for their personal financial situation. For this reason, Advance America welcomes competition in the regulated short-term lending market.

"Millions of Americans desperately need access to short-term, small-dollar credit. We cannot simply wish away that need. In any market, robust competition is a win for consumers."
     --Mick Mulvaney, BCFP Acting Director

However, to best protect American consumers, regulators must create an environment where all lenders operate on a level regulatory playing field and there is a balance between consumer safeguards and access to credit. Such an environment would empower consumers to make informed decisions that match their personal situations, and would allow lenders to compete for business under the same set of rules, with proper incentives to ensure the flow of credit. The BCFP was founded on this very concept.

As the Bureau re-examines its short-term lending rule and other regulators encourage credit unions, community banks and large banks to enter the short-term credit market, they have the opportunity to do what the Bureau failed to do with its rule the first time: govern products, not providers, to offer consumers access to the credit options they need and prefer.