Small-dollar loans are a vital lifeline to many Americans

To the editor,

BankThink recently published a letter ("Stopping predatory rent-a-bank loans is good policy" January 26, 2024) that discounts the real-life challenges facing consumers with low credit scores, and proposes to make it even more difficult for these consumers to succeed financially by limiting their access to credit. The letter mentioned OppFi, the company I founded in 2012, and other companies that offer small-dollar loans to consumers, but entirely misrepresented the services we provide to make its argument.

A seemingly mundane experience had a profound impact on my life: seeing a woman pawn her wedding ring to get cash. Soon after, I created a company that facilitates small-dollar installment loans based on a belief that the millions of Americans who lack traditional options deserve access to safe, simple and more affordable credit. As such, we work with state-chartered banks to help them increase access to credit and ensure strong consumer protections for consumers.

The author apparently does not understand the challenges that cash-strapped and credit-challenged individuals face, and why access to credit options is critical to their financial well-being. According to a recent Harris Poll survey, about 65% of working Americans say they frequently live paycheck to paycheck and about 30% of households report that they run out of money at the end of every month. Couple that with the fact that over 63 million consumers across the United States are considered "credit marginalized" and have been rejected at least once when applying for credit products in the past 12 months.   

For the millions of Americans who are cash-strapped and shut out of the traditional banking and credit market, what should they do if they run into car trouble, medical bills or other unexpected expenses?

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The everyday consumer needs and deserves to have options when they need them most. If you take away these options, these struggling consumers will be adversely impacted the most.  

In fact, a recent study in Illinois analyzed the effects of a loss in credit access after the state imposed an interest-rate cap of 36% in 2021. It found that most borrowers had been unable to borrow money when they needed it following the interest-rate cap — with only 11% of respondents saying their financial well-being increased, versus 79% who said they wanted the option to return to their previous lender.

The mischaracterization of small-dollar loan options as "schemes" is not only inaccurate — it also represents an unhelpful misunderstanding of the nuances at play for so many hardworking Americans who deserve access to credit.