The recent Underbanked Financial Services Forum, hosted by the Center for Financial Services Innovation (CFSI) and American Banker, sparked a much-needed debate about innovations in the short-term credit marketplace.
Former Consumer Financial Protection Bureau (CFPB) deputy director Raj Date, for example, described the very real need for more efficient short-term credit – including bank overdraft programs, retail consumer loans and bank deposit advances – acknowledging to the American Banker that the marketplace lacks a “competitive dynamic.” Some states have served as laboratories for regulations that protect consumers and ensure reliable access, especially related to retail consumer loans. The next step – noted by Date – requires competition across providers and services. The evolving marketplace currently lacks meaningful competition because providers and services are regulated differently – while some operate without any oversight.
We join the call for more reliable access to affordable credit; however, we’d like to take it a step further. Banks, credit unions, and consumer lenders like Advance America must revisit the way they operate – and collaborate – to provide a diverse array of consumer credit options. Financial service providers must unify the various services they offer so that consumers experience greater continuity between institutions and, ultimately, are able to gain greater financial and borrowing experience. Increased collaboration between banks and nonbanks will help consumers build a track record of successful, timely repayment, build – even rebuild – their credit, and gradually move towards a sustainable banked relationship.
However, this “credit continuum” would not only depend on the collaboration and innovation across the financial services industry, but a level regulatory playing field where comparable products such as bank deposit advances and retail payday loans are subject to similar regulations. Without these factors, consumers will continue to struggle to easily compare their short-term credit options.
To read more on Advance America’s idea for a “credit continuum,” read an American Banker article by our co-founder Billy Webster.