Obama Administration Appears Set to Wage War on Online Lenders
The Obama administration made some announcements recently that should be of concern to anyone who gets loans online or who operates an online lending company. The administration announced that it is actively soliciting for complaints from people who have been “encountering problems with loans from online lenders.” This is a blatant warning that financial regulators are going to be taking some serious action against an industry that has experienced phenomenal growth in recent years.
There are literally millions of people who have taken out personal loans via the Internet. These types of loans continue to grow in popularity because they don’t require borrowers to spend hours trying to procure a loan, and they give consumers access to loan applications, comparing loans and ultimately getting their money around the clock. People can easily compare the rates of one lender to another, the same way that they would compare hotel room prices or prices for products on Amazon.
Marketplace loans, or online loans grew from $12 billion back in 2014 from just $1 billion back in 2010. These types of loans have increased competition among lending companies and allow consumers to choose from a wider variety of financial products, while saving money in the process. These benefits apply to everything from mortgages and car loans to educational loans and refinancing existing loans.
It seems, however, that the regulators that Obama is using do not see these benefits. In fact, they seem to view the world of online lending as a virtual landmine that is filled with dangers for consumers. And they are doing everything they can to get control of this industry.
Richard Cordray is the director of the Consumer Financial Protection Bureau (CFPB.) In talking about online lending, Cordray said, “When consumers shop for a loan online we want them to be informed and to understand what they are signing up for. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn when they encounter problems.”
Financial experts seem to be fearful that the CFPB is getting ready to start a major smack down on online lending companies that will be very similar to the pressure that the organization has been putting on payday lending companies, auto title lenders and other providers of alternative financial services. Anyone familiar with how Cordray and his subordinates has been on a witch hunt to take down these types of lenders should be aware of why online lending companies are concerned. The new alert released to consumers is nothing more than the administration’s attempt to gather up negative data against lenders in the burgeoning online lending industry. The fact of the matter is that the CFPB already collects financial service/product complaints from American consumers. Why is it that a special initiative is being put together with the sole purpose of collecting negative information related to online lending transactions?
Scott M. Pearson from Ballard Spahr LLP stated, “The CFPB’s objectives in taking these actions are questionable, since consumers already could complain about marketplace loans using the CFPB’s existing loan categories. Rather than seeking to provide additional protection to consumers, perhaps the CFPB’s primary objective is to warn marketplace lenders that they are clearly on the CFPB’s radar screen.”
The truth is that online loans have not been the source of a whole lot of consumer complaints. Debt collections, identity theft and even issues with traditional mortgage lenders have received plenty of complaints from consumers. Yet the CFPB continues to cherry pick the industries that it intends to put pressure on, instead of meaningfully using the customer complaint data that the group has access to.
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