Last week the Federal Deposit Insurance Corp. confirmed what we, in the short-term lending industry, have been saying all along: Since the global financial crisis, consumers have increasingly relied on nonbanks to manage their finances.
More than one in four households – 28.3% – are either unbanked or underbanked, and conduct some or all of their financial transactions outside the mainstream banking system, according to the results of the FDIC's 2011 National Survey of Unbanked and Underbanked Households.
To be clear, that's nearly 12 million households that do not use banks and another 24 million households that have a bank account but also use a nonbank financial service, such as prepaid debit cards and short-term loans.
The Great Recession has truly changed today's economic landscape in ways we are only beginning to discover.
We've learned that the typical American family lost nearly 40% of its wealth from 2007 to 2010. Yet, we still go to work, we still get our children ready to start school, we still have to put gas in our cars and we still have to put food on the table.
But what happens when these families do not have the cash to fulfill their obligations? A recent study by the National Bureau of Economic Research revealed that nearly half of American consumers cannot access $2,000 in 30 days to meet an emergency.
So where do they go? Many nonbank lenders are trying to step into the market to offer innovative credit products that satisfy the dramatic change in consumer behavior. Unlike banks, these nonbanks have their own money at risk, not taxpayer dollars. They do not take deposits – they only aim to make credit available.
Nonbanks have been quick to incorporate technology because they know that mobile bank users will double in the next five years and reach 108 million by 2017, accounting for almost half of all bank account holders in the U.S.
As a result, companies operating in in the alternative financial service space are growing. They have been keeping tabs on the changing financial landscape and tailoring online credit products to fill the widening gaps left by banks.
However, under the current myriad of state regulations, nonbanks are trying to meet consumer demand with one hand tied behind their backs. It's time that all of us – policymakers, bankers, non-bankers, Congress, state legislators – take a wholesale look at how we can work together to truly unshackle the innovators who want to bring new products to market.
We can start by seriously considering the bipartisan Consumer Credit Access, Innovation and Modernization Act. The legislation will establish a federal charter that clearly defines a set of transparent national standards, allowing lenders to provide more credit alternatives with lower costs as well as flexible payback periods and loan amounts. It will also offer millions of Americans the kinds of financial options that will help them build credit for future banking alternatives.
Clearly, nonbanks operating under a federal charter will have to comply with federal laws and regulations applicable to other bank lenders, including the consumer protection authority of the Consumer Financial Protection Bureau.
If regulators truly want to make safe, affordable, and innovative credit options available to millions of under- and-unbanked Americans, the Consumer Credit Access, Innovation and Modernization Act will do just that.
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.