Installment Lending Meets Consumer Needs Now
The American Financial Services Association, the U.S. trade association for the consumer credit industry, has long supported increased options for consumers to access credit, including banks.
While regulators in Washington released principles recently to encourage banks to offer a variety of consumer loans, it is important to remember that traditional installment lenders have been meeting consumers' needs for these types of small-dollar loan products for more than a century. While policymakers tend to focus their attention on banks, they should remember that the financial services industry – particularly the consumer credit industry – is large and diverse.
Installment lenders are particularly well suited to meet the lending needs for most consumers, in part because banks may not be able to offer small dollar consumers loans due to regulatory and underwriting costs.
In fact, federal regulators understand that traditional installment loans are exceedingly difficult and time consuming to underwrite. In an article in Military Times in 2015, Debbie Matz, then the Chair of the National Credit Union Administration (NCUA), noted that, "We have done the math and found that when fees are included, many credit unions' short-term loans would exceed the proposed 36 percent [rate cap].” AFSA President & CEO Bill Himpler responded to the article, as well.
Installment loans are plain vanilla products with defined interest rates and payment schedules that do not include prepayment penalties or balloon payments. More importantly, installment lenders have brick and mortar locations that are right on Main Streets across America. Some lenders have worked with four and five generations of the same family to provide funding for car repairs, school supplies and appliance purchases.
AFSA commented on the principles when the regulators proposed them, and Bill Himpler met with Chairman McWilliams on this issue earlier this year. In the coming months, installment lenders will continue to play a crucial role in supporting the American economy and consumers in need of quick and reliable loans. As we have for over a century, AFSA and its members will be there to help our country and its citizens accomplish their goals.
May 21st, 2020
