But what should millions of Americans do without a credit card or bank account?
Im 2017, the Federal Reserve estimated that one in four American families did not have enough savings to meet an unexpected expense of $ 400. Since pandemic containmentsThis number has increased because many Americans have been financially flattened.
For some people with poor credit scores, the answer has been to get an emergency loan. In the past, this often meant going to a storefront for a “payday loan”. These loans often developed a negative reputation because they charged high interest rates for a loan lasting only two to six weeks. So when the Consumer Financial Protection Bureau (CFPB) was created by President Obama in 2011, Congress gave him specific powers to regulate all short-term lenders.
But the growth of the internet means that many of these loans are turning to innovative online products that offer longer repayment terms and better terms. They typically offer loans between $ 1,500 and $ 10,000, with no collateral requirements or potentially intimidating meeting with a loan officer.
But critics of “payday loans” attribute all of the alleged problems with these products to the online lending industry. Senator Elizabeth Warren, who was the creator of CFPB, said consumers struggle to understand new products, make poor choices as a result and need to be protected.
But the CFPB itself was not sure that more regulation was the answer. A CFPB working group January 2021 noted that it was dangerous to use “patronizing stereotypes” of consumers to guide industry regulation:
Recent research indicates that today’s “experts” continue to underestimate the knowledge and capabilities of low-income and marginal consumers. The task force urges that any legislative or regulatory action taken to deny marginal consumers access to low-value loan products be based on sound economic theory and empirical evidence and not on unfounded and condescending stereotypes of consumers. consumers who use these products.
In the last year of the Trump administration, the CFPB proposed a rule allowing financial institutions to once again offer creditworthy people easier access to loan products. Senator Warren quickly responded that “this new rule removes crucial protections for borrowers and makes it clear that the CFPB is not doing its job to protect consumers.” The CPFB may be on the verge of abolishing the Trump-era rule and effectively banning online lending.
Many minority business owners find all of this paternalistic and insulting. Business strategist Julio Rivera writes, at Washington Times:
It is particularly infuriating for Ms Warren to make this point about private lenders, as she previously championed an initiative to allow the US Postal Service to offer similar loans specifically to pay rent, utilities, mortgage payments and other unforeseen expenses. Bureaucratic government loans yes, private companies no? . . . Leftists often attempt to deny minorities and working-class households the opportunity to have the options and freedoms – in this case access to credit in emergencies – that elite progressives take for granted.
Democrats have always favored large financial institutions and their lending programs and scorned low value consumer loans. But more than 7 million American households don’t have anyone with a bank account, and nearly half say it’s because they don’t have enough to meet minimum balance requirements. Many have resorted to non-bank credit for their lending needs. For those with only a high school diploma, less than 40% of the loans they take come from banks.
Very Reverend Council Nedd, Archbishop of the Missionary Episcopal Church, told me that liberal “loan savers” who want to stop short-term loans “have no plan to fix your leak or get your car fixed; not even a plan to create an economic environment so that you can have access to the same credit cards they take for granted.
Nedd says that instead of regulating online lenders – who have used technology to cut costs and more easily match lenders with the best lending options – the government should focus on expanding economic opportunities, not to choke.