Financial Emergencies: Why Can’t Consumers Find $500?

By: Kevin B. Kimble
Founder & Director of Policy Development
Financial Services Innovation Coalition
March 7, 2016

We are living in interesting financial times in our nation these days. People are both stressed, and stretched out to the max.

A recent study shows that a majority of working Americans don’t even have enough money to cover the $500-$1000 “expected” but unexpected family or personal emergency expense. The payday lending model has proven to be both too costly, and many times fairly detrimental to borrowers. For most people the need to turn to those financial products is the choice of last resort, and desperation. Their hope to saving the day is many times crushed by the fine print and fees accrued from using this product of last resort.

Due to complex and intricate laws both the banks and credit unions are unable to meet the needs of these consumers. On the other hand both the banks and the credit unions have not worked very hard to create the financial products needed to serve this expanding and growing group of potential customers. They choose to do big business with the companies creating & servicing these products in this unique lending market, but they don’t put their feet into this very specific financial product pool. In their view there just isn’t enough profit in a $500 loan.

Today’s modern technology and the explosive growth of market place lending have completely changed the game. Right now is the time for opportunistic and innovative entrepreneurs to fill this massive financial void. In the recently released Obama Administration 2017 budget, there was an inclusion of $100 million dedicated to help create the alternative lending models with real life and non-soul crushing interest rate caps, which are truly needed in these trying economic times.

While this is a needed first step, the citizens living in the economic no-man’s land need further support and attention. To that end, the Dodd-Frank law APR limit is still higher than the caps of many states thus creating a major & unnecessary conflict of state and federal laws that needs to be resolved.

These special consumer lenders now have the ability to do business because the federal laws allow them to operate in states without the need to apply for licensing in each state. The real question moving forward is whether this provision of the federal law provides the quasi-chartering authority so that these lenders can get the volume of customers needed to make these types of lending programs viable.

Now more than ever it will take the efforts of both the Congress, and Administration to make this happen. They will have to work together to provide both the clarity and authority for these types of special lending innovations to flourish and grow.