Last week in Birmingham, Ala., Richard Cordray, the newly appointed director of the Consumer Financial Protection Bureau, reiterated his agency’s intent to end illegal activity in the payday lending industry. I commend this effort.
My trade group, the Online Lenders Alliance, is doing its part to stop any illegal activity that threatens our industry and consumers by setting an example. OLA’s best practices and code of conduct require that our members adhere to the highest standards of conduct and fully comply with federal law. Members may not engage in any false, misleading or deceptive advertising or marketing practices. We also believe strongly in helping consumers help themselves by providing referrals to credit counseling, education and assistance where appropriate.
Any company that violates our standards will lose its membership, and thus the right to display our seal of approval on its website. Since our founding in 2005, we’ve terminated one member, and rejected applications to join from two companies.
OLA and its members are committed to working with the CFPB and other regulatory agencies to ensure that consumers are protected from unscrupulous lenders. At the same time, it is essential that the CFPB ensures that consumers continue to have online access to emergency credit products such as those offered by OLA members. Convenient and safe online financial products are a vital resource for millions of Americans.
Consumers seeking short-term, small-dollar loans are increasingly choosing online lenders for the convenience and safety provided by the Internet. According to a recent analysis by JMP Securities, 36% of short-term loans in 2011 were made by online lenders and by 2016 online lending will represent over two-thirds of short-term loan volume. This makes perfect sense given the increased convenience and safety provided by the Internet.
Like all other segments of the population, underbanked consumers expect to be able to access their credit products via the Internet. In the November 2011 Underbanked Financial Sentiment Index survey, published by our member company Think Finance, almost 90% of underbanked respondents said they had broadband or high-speed Internet access, 96% owned a computer, over 80% indicated that they used at least one social media site, and over half had a smartphone.
It’s clear from the data that online financial services are here to stay and will play an increasingly important role for all Americans, not just the wealthy. It is critically important that the CFPB work closely with the online lending industry to protect the rights of underbanked consumers to access emergency cash products through online and mobile channels.
Lisa McGreevy is president and chief executive of the Online Lenders Alliance, a professional association for companies that provide access to short-term, small-dollar loans via the Internet.