Jan 09, 2019 Philip Burgess
When one industry contains a few players that operate outside the lines of agreed ethical standards, those offenders should be dealt with swiftly and severely. This should never, however, result in the errant decision to abolish that entire industry as shared punishment. Not only is such a reaction extremely irresponsible to the legitimate companies within the sphere that provide a critical service to consumers, but the actions taken can be questionable from a legal standpoint.
It is this exact approach that has led the short term lending industry to question recent actions made by a number of governmental bodies. Disparaging comments made by key, high-level decision makers and national leaders offer further proof of a deliberate and organized attack on an entire industry, including flippantly calling the current turmoil in the sector a "collateral benefit". Ever since New York State Superintendent of Financial Services Benjamin Lawsky launched his unheralded witch hunt against online lenders in August, the focus has been on the sphere. Opponents continually fail to acknowledge that the majority of the short term lenders operate within the reasonable legal limits set by regulators and provide a worthwhile and valuable service to consumers across the nation.
Opponents also continue their claim that fees associated with short term and small dollar loans are excessive. The fact remains that many consumers' only other options are simply to miss bill payments and/or incur late fees or massive overdrafts charges from banks. It's notable that late and overdraft fees are generally much higher than the interest rates associated with high-risk short term loans.
The "snowball effect" kicked off by Lawsky now involves some much larger federal bodies. Recently, the short term lending sector has confirmed suspicions that the U.S. government - specifically the Department of Justice (DOJ) and the Federal Deposit Insurance Corporation (FDIC) - is taking organized, deliberate steps to abolish the entire industry. Lenders and consumers alike have every right to be concerned and all parties involved should demand answers.
Ongoing witch hunt
Despite statements to the contrary, the short term lending industry should be aware that there is mounting proof that the federal government is on a calculated, organized offensive. High-ranking officials with the DOJ and FDIC recently gave a presentation to the heads of the major bank regulators in the nation.
It was DOJ Trial Attorney Joel Sweet's statements at the event that were the most alarming. In a brazen example of gloating, Sweet referred to the shutdown of Internet-based lenders because of the closure of third party payment processors (TPPPs) as "collateral benefits." Of course fraudulent TPPPs should cease to exist, but the smug reference to lenders demonstrates an attitude of unprofessional contempt and bias.
Government bodies have been wrongfully targeting legitimate lenders for a number of months. For instance, an article in The Fiscal Times published in early August pointed to the beginnings of an unfair situation for online companies. The piece, playing off information from The Wall Street Journal, noted that genuine lenders were concerned about the increased scrutiny placed on the sector, and objected to the sweeping and misleading statements lumping fraudulent operations in with their own.
Recent letter highlights questionable dealings
Wisconsin Congressman Sean Duffy recently sent a letter to FDIC Chairman Martin Gruenberg and Attorney General Eric Holder requesting information about recent events. Representatives from the FDIC had gone to Wisconsin banks and asked them to stop working with online lenders, with facing "the highest levels of scrutiny they could imagine" being the only alternative. Duffy noted that Native American online lenders are completely legal in his state, so this was an invalid request.
Duffy also explained that there have been reports of the FDIC and DOJ combining to take unheralded action against the Internet-based short term lending industry at large. They have allegedly made statements suggesting that they would choke such businesses "off from the very air they breathe," calling to mind the auspices of the rogue government operation that they had so long denied. Making such inflammatory statements could turn consumers away from businesses that would help them.
What does this mean for the future?
The lending industry and government representatives alike have to get involved in this fight to promote justice over such outrageous actions being pursued by some factions within the government. Speaking with Congressmen and other representatives is the only way to call the government out on its rogue, offensive actions. What the FDIC and the DOJ are doing is absolutely unacceptable. They must be stopped before they cripple the industry that helped so many American consumers through the economic crisis.
Both federal bodies at the center of this scandal have a responsibility to be transparent in their actions and protect American access to emergency credit options. The onus is on all of us to make sure that legitimate lenders have a fighting chance and can live on to see another day.