In May, the US Federal Reserve released its “2018 U.S. Household Economic Well-Being Report. “Again, one of the big takeaways from this year’s version is that almost 40% of Americans would struggle to afford an emergency expense of $ 400.
This population does not have access to cash, savings or credit cards reimbursed on the next statement. When they have to find funds to cover unforeseen needs, they turn to other sources of credit, such as the online credit industry, of which my organization is a part. TransUnion’s “Fourth Quarter 2018 Industry Outlook Report” found that these types of loans have grown from 5% of all outstanding loan balances in 2013 to 38% of the market in 2018, and that the pace is still accelerating.
This increase in volume is due in part to an increase in financial technology (fintech), which has allowed lenders to go beyond the restrictions of traditional FICO credit ratings to establish their creditworthiness. But fintech has not only made great strides in serving consumers; its innovations also contribute to their protection.
The online lending industry is regulated by federal laws, as well as various state and local laws that lenders must follow. But like any rapidly growing industry, the online lending market is not free from bad players trying to operate outside regulatory limits.
While the Federal Trade Commission (FTC) has historically warned consumers about these types of bad actors, it’s important that industry leaders go above and beyond to ensure a safe market. This involves not only monitoring the market, but doing what they can to monitor the Internet as a whole – and reporting to the FTC (as my organization does) to take action on the most egregious cases of fraud and of disinformation.
One of the cornerstones of reputable online loans is fair, accurate and transparent marketing and advertising. For this reason, there are a number of claims often made by fraudulent actors that are simply not made by reputable lenders. For example, reputable online lenders always perform credit checks on potential borrowers and use financial technology tools to determine their creditworthiness, even if a borrower has no credit or a lower than exemplary credit rating. So any claim that a lender will provide a “no credit check” loan is misleading at best and often quite plain wrong. “Instant Approval”, “Guarantee” and many other terms are also bogus. To identify lenders making misleading statements, my organization has launched a web crawling initiative on behalf of the industry to remedy these businesses or report them to the appropriate authorities.
Industry trade groups are responsible for overseeing the industry, but individual companies must also play a leadership role in this area. First, they must remain vigilant of those who would damage the reputation of the industry and take action when they detect instances of bad behavior. These companies keep the pulse of the business, interacting with consumers day in and day out, so they will likely be the first to hear the horror stories. And when they hear about something actionable, they should act on it. This means either reporting bad actors directly to the FTC, state attorneys general, or other relevant authorities – or, at least, reporting them to those who lead police and law enforcement activities for the. industry.
In addition to serving as a cop to hunt and catch bad actors, the industry must also create guidelines to hold its own members accountable. With a set of best practices designed to protect consumers and ensure fair business practices, consumers can be confident that they are choosing lenders who have accepted these high standards.
Ultimately, online loan products and services play a useful role for many consumers. Opponents of these credit products want to use the minority of bad actors as an impetus to slander the industry as a whole. It is sad.
As technology evolves and consumer convenience with online lending increases, it will be more important than ever for industry leaders to take a proactive role not only in monitoring their own industry, but also in researching and by exposing the fraudsters who exist to take advantage of consumers. . By creating a secure market of honest operators and working with regulators where possible, the industry can serve as a first line of defense. This, in turn, will help protect consumers from scams and ensure that these credit products remain available to the millions of American consumers who need them.