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Officials regulating short term products despite high demand

Dec 16, 2013 Quinn Thomas

A number of federal organizations and local government groups have taken aggressive steps to limit the ability of the short term loan industry to function in recent months. The Consumer Financials Protection Bureau (CFPB), and the Office of the Comptroller of the Currency (OCC) are just two of the outlets that have made headlines for spearheading overzealous regulations in the last several months.

The Washington Post reported that the OCC and the Federal Deposit Insurance Corp. released identical statements in November, urging banks to avoid participating in any financial service that is similar to short term lending. This is only the most recent step in the war officials are waging against the cash advance sector. Earlier this year, financial regulators in New York told a number of online lenders to cease operations in the state, a move that was criticized by many, as the regulators' jurisdiction was questioned.

The latest development shows just how far federal financial officials will go in their effort to limit the short term sector. Due to a low percentage of advanced loans resulting in consumer complaints, critics have unjustly targeted the industry. Despite other financial services also being the subject of similar complaints, few steps have been taken to address those concerns. This shows that destroying a legitimate industry millions of Americans rely on is a priority for regulators.

Competition should be encouraged
Despite the industry being under attack, Fortune Magazine recently reported that short term services are in high demand in the United States. However, this is not a fact that industry critics often mention, as it's an indication of the trust the American public has in the sector.

The source suggested that increased competition would make the industry more competitive, likely benefiting borrowers, as lenders would need to offer more attractive rates and incentives to consumers. However, in such a regulated environment, fewer short term outlets are able to function.

Instead of limiting what short term providers can do, federal, state and local officials should establish policies that allow the sector to thrive. Millions of Americans use such services, so allowing the industry to operate is in the best interests of the nation. However, creating a healthy and competitive environment for this sector they thrive in will not be accomplished through intense restrictions being put in place, Rather, it will shut off a large number of American consumers to a vital financial service they rely on.