The Meaning of 'Underbanked': American Banker consumer finance reporter Kevin Wack jumpstarted a lively debate when he suggested the industry ditch the term "underbanked" since its meaning has gottenfuzzier and more misleading over time. "Increasingly it's a euphemism to describe people who can't get a loan at an affordable interest rate, often because they have a poor credit history," he wrote. "After all, 'serving the underbanked' sounds a lot better than 'making subprime loans.'" Many readers agreed with Wack's assessment. "The term 'underbanked' should be used only to refer to a marketing opportunity for banks, not as some kind of policy justification," one commented. As for alternatives, BillFloat CEO Ryan Gilbert suggested "underwhelmed" would serve as a more fitting term for the demographic in question since banks tend to ignore consumers who only occasionally need credit. One reader suggested that "underbanked" isn't the only term in the financial services industry that has grown outdated. "Who defines 'traditional financial lenders'?" he wrote. "Look around For many 'borrowers,' a payday loan store is a traditional lender. A check casher is their traditional financial service center."
Back off, Regulators: Jerry Brito of the Mercatus Center at George Mason University urged regulators to embrace Bitcoin. "Rather than attempting the impossible feat of regulating the Bitcoin protocol policymakers and law enforcement should work with the Bitcoin community to realize the potential benefits of censorship-resistant money and to develop tools and techniques to address the technology's potential misuse," he wrote. Some readers agreed with this assessment, while others suggested ways to police the alternative currency without going overboard. "Regulating doesn't mean heavy-handed controlling," one commenter wrote. "Establish basic rules of conduct, set up consumer protections and standardize rules for setting exchange rates." Meanwhile, Peter Weinstock of Hunton & Williams LLP argued regulators were certainly overstepping in moving to force financial institutions and third-party payment processors to stop doing business with certain online consumer installment lenders. "What is occurring is not the appropriate use of enforcement sanctions against malfeasance," he argued. "Instead, it is a systematic effort to root out a product under the guise of claims of inappropriate conduct."
Columnist Potpourri: Risk consultant Mayra Rodríguez Valladares continued her Busy Summer in Basel series by looking at what new guidance from the international banking committee means for global systemically important financial firms and shadow banks. Meanwhile, Risk Doctor Cliff Rossi argued financial firms should get a C+ in postcrisis management. "Banks should get an 'A' for effort for attempting to address the many deficiencies in risk management that surfaced during the crisis," he wrote. "However, their execution has been lackluster."
Got an informed opinion on the business of banking? Submit to BankThink. Full submissions guidelines are available here.