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A bipartisan bill that would permit regulators to grant federal charters to nonbank consumer lenders is being met with fierce resistance — particularly from regulators themselves.
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I recently released a report, "
The proposed bill, H. R. 6139, would create a federal charter for National Consumer Credit Corporations. Basically, this bill would allow nonbank financial services providers to offer installment loans up to $5,000 with affordable repayment terms over several months or years. These loans would not be funded by FDIC-insured deposits, thereby eliminating any risks to taxpayers.
The new charter would provide Office of the Comptroller of the Currency (OCC) oversight of nonbank financial services providers and would open up the market for unsecured consumer installment loans. These companies now operate under disparate state licenses and regulations, which limit these loans in many states. The charter would allow these firms to offer unsecured loans directly to consumers nationwide.
What does this have to do with community banks? At first blush, the bill would appear to offer competition. However, in reality, most community banks have abandoned relatively low dollar unsecured installment loans in favor of credit cards, home equity lines of credit and overdraft coverage. The poor economy and recent regulations have significantly limited these options to moderate income consumers. Additionally, the traditional consumer finance companies that provided these loans have all but disappeared in the last ten years.
A recent American Banker article, "
There is potential for these alternative financial services companies to develop alliances with community banks so they both can provide loans to low-to-moderate-income consumers, a demographic that banks cannot profitably serve with traditional products. These companies would provide proven and effective marketing and servicing and analytic activities for the banks with software the AFS providers have developed in serving these consumers.
There are over 60 million unbanked or underbanked individuals in the U.S. and that number is growing by almost 3 million every year, according to a study by the
G. Michael Flores is the CEO of Bretton Woods Inc., a consulting and research firm in St. Simon Island, Ga. He has taught at the Pacific Coast Banking School at the University of Washington and at the University of Wisconsin.