By now, the sobering statistics are familiar: Nearly half of American adults say they could not cover an unexpected expense of $400, according to the Federal Reserve. Now, a new study by the Consumer Financial Protection Bureau (CFPB) similarly shows that more than 40 percent of Americans struggled to pay bills at some point during 2016.
But, familiarity doesn’t make it OK. Richard Hunt, president and CEO of the Consumer Bankers Association (CBA), has authored a letter appealing to the CFPB to create responsible rules surrounding small-dollar, short-term loans for consumers facing economic hardship.
Hunt referenced the recent spate of hurricanes and wildfires that have left many Americans in dire financial straits and indicated that banks wish to help individuals and families impacted by such events. Unexpected bills and medical expenses can also leave families high and dry, Hunt wrote.
“Bankers know consumers often need help when unexpected expenses arise, and we want to offer safe, sustainable products during these times,” Hunt wrote. “Any rules for offering these types of loans need to provide for flexibility in underwriting and realistic expectations on product usage in order to meet a very specific need — fast, affordable, small-dollar loans.”
Previously, Hunt wrote, consumers had access to bank-offered deposit advance programs that served their short-term needs well. In addition, the programs had low default rates and offered more protection than most payday lending programs. However, those deposit-advance programs effectively became a casualty of strict new guidelines issued in 2013 for banks offering such products.
Hunt wrote that CBA members are not against safeguards, but they feel the rules are too prescriptive, forcing consumers to borrow more than they need and/or placing “arbitrary caps” on those who receive, use and repay their short-term, small-dollar loans responsibly.
CBA members are not handing out short-term loans on the street corner. Hunt said members have existing relationships with the customers seeking these loans, and loan approval is contingent upon an analysis of the customer’s cash flow and other factors so that customers do not start to view these loans as a crutch.