Small-dollar lending filling real need for Americans

May 30, 2017 | Consumer Credit Wire

In a recent ReasonTV video interview, University of Pennsylvania professor Lisa Servon told the story of her experiences working in several positions at nonbank financial services firms, including at a small-dollar lender, to explore the reality of living paycheck to paycheck – a reality that over 75 percent of Americans face. Servon relayed what she learned about how much customers value access to small-dollar loans and published a full account of her findings in a book titled The Unbanking of America: How the New Middle Class Survives.

Click here to watch the full video.

Unlike many small-dollar lending industry critics, Servon spoke directly to customers to learn why they used the product. Her research found that many communities depended upon these sources of credit in place of traditional banks. For many, they have nowhere else to turn.

Servon’s on-the-ground research and experience with customers comport with the academic studies done by other experts as well. When the CFPB solicited comments on its payday lending rule last year, a number of experts – including scholars at the Competitive Enterprise Institute,Mercatus Center, and Cato Institute – warned the CFPB that restricting access to credit would worsen the financial situation of millions of customers by leaving them without options when faced with financial difficulties.

Customers who submitted their own comments to the CFPB echoed the same concerns as these experts. Customers told very personal stories about how small-dollar loans have helped them in their times of need, saying:

• “Diagnosed with breast cancer, my insurance doesn’t cover as many expenses as I hoped it would, and cash advances have really helped me out when I needed money to pay for medicine.” – Linda T.
• “[T]he battery went dead in my car. I had to pay $145 for a new one and I didn't even have that much left over from my check. I had no family or friends that could help me out but I was able to go take out a loan to get my car running again. I would have either had to stress about trying to find rides everywhere or call into work, which would have really hurt me financially. You never know what or when life is going to throw at you.” – Ashly B.
• “I am retired, living on a fixed income. Recently, my wife's mother was dying. We did not have the funds to get her to her bedside so I borrowed money … in order to get my wife to her mother in time. It was a blessing to be able to do this without having to accrue additional credit card debt.” – Donald P.

There is a growing realization among academics that the rhetoric used by opponents of small-dollar lenders portrays a much different product than the one that millions of Americans like the ones above depend upon and value. Servon’s research and the testimonials of hundreds of thousands of consumers who spoke out against the CFPB’s proposed rule show that it was ill-conceived and does not take into account appropriate data, research, and public input mandated in federal agency rulemaking. This rule that essentially eviscerates small-dollar lending will only serve to harm the millions of consumers who use small-dollar loans nationwide.