New Conversation Needed on Consumer Credit

There has been a great deal of public debate surrounding small-dollar, short-term credit products like payday loans, direct deposit advances, credit cards, overdrafts and their advantages and risks for consumers.

This month, I visited with about a dozen consumer groups about the current status of online small-dollar lending.

The purpose of the visits was to share information about what we are seeing in the marketplace and to solicit their input on what they thought best for consumers. What I came away with is the belief that it's time to start a new conversation on consumer credit.

For too long the focus of this discussion has centered on why current products aren't working for consumers. Let's stop talking about what we don't like. What elected representatives, regulators, consumer groups and industry leaders should be discussing is how to work together to foster innovation in the short-term credit market that leads to better products for the nation's consumers.

This week, there are two important hearings taking place about this subject. The Consumer Financial Protection Bureau has a field hearing about payday lending in Nashville Tuesday and Wednesday the Senate Banking Committee will ask witnesses from industry and academia if alternative financial products are adequately serving consumers. I implore all participants to resist the urge to continue criticizing what they don't like and start talking about how we can provide even more choices to consumers.

We all agree that the need for short-term credit is increasing nationwide along with the demand for longer-term, more flexible options. Consumers are looking for more options beyond the traditional two-week payday loan and so are online lenders.

These consumers span all income levels. Last week, the Brookings Institution released a report stating that 38 million Americans are living paycheck-to-paycheck. Two-thirds of them aren't considered poor but often face a cash-flow squeeze because much of their wealth is tied up in their homes or other illiquid assets.

A guide recently issued by the Center for Financial Services Innovation noted that consumers spent approximately $41.2 billion on small-dollar credit products in 2012 and that "having the ability to borrow relatively small sums, on reasonable terms, can help individuals weather a financial shock, smooth income fluctuations, build a positive credit history, and facilitate a wealth-building purchase."

Providing equal access to credit products requires a national solution. State and federal laws have not kept pace with innovation in the financial services industry. A national approach to modernizing our laws and regulations means more innovation, flexibility and pricing structures for consumers.

An environment that allows for this innovation must also include more vigilant protection of consumers. There have been far too many unlicensed, rogue operators that have taken advantage of consumers and tarnished the rest of the companies offering short-term credit products. These entities, created solely for the purpose of defrauding consumers, must be identified, reported and prosecuted.

All consumers should have equal access to the short-term credit they need when and where they want it. The Online Lenders Alliance and its member companies stand ready to work with Congress, regulators and consumer groups to find the best solutions for the short-term credit needs of our nation's consumers.

Lisa McGreevy is the president and CEO of the Online Lenders Alliance.