Dec 16, 2013 Philip Burgess
Despite the fact that many Americans rely on short term lenders for useful financial services, regulators across the country have been taking aggressive steps to limit the industry's ability to support borrowers. If their efforts are indeed successful, many underbanked Americans could have limited access to financial products, which could have negative effects for the economy as a whole.
Even so, regulators have continued their crusade against short term lenders, and many are using indirect strategies to regulate the sector. According to law firm Greenberg Traurig, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) recently issued final guidance on short term loan products that target banks that process these loans.
The organizations' message to these financial institutions was that short term products can present significant risk and should be avoided. The OCC and FDIC also urged banks to consider slowing the extension of these loans by implementing a "cooling-off" period lasting one month after an advance loan is paid by a consumer.
Despite indicating that banks should consider borrowers' short term needs, the point of the final guidance was made: Short term products are indeed frowned upon by federal regulators.
Another government group that has been actively attempting to limit the short term industry is the Consumer Financial Protection Bureau (CFPB). The source reported that the organization has made a number of efforts to implement regulations against outlets since last year.
New services targeted
The most recent move by the CFPB came from Holly Petraeus, the organization's assistant director for servicemember affairs. At a November 21 Senate Commerce Committee hearing, she said that regulators need to be given the power to limit newer products created by short term lenders, Greenberg Traurig reported.
Although many of these new financial tools are constructed with recently passed legislation in mind, the scrutiny will not cease. Even when short term outlets adjust their practices to be in compliance with zealous regulations, they are still targeted by federal officials.
Even at state and local levels, the war against short term lenders is being waged. The NWI Times recently reported that the city council in Hammond, Ind., amended zoning laws in order to prevent short term loan stores from being located within 500 feet of each other.
Despite the beneficial service short term lenders provide, there appears to be a misconception about what these outlets provide to consumers. Instead of promoting such limiting regulations, officials should take steps to educate the public about how to use short term services in a responsible fashion.