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A few years ago, the Federal Reserve estimated that one in four American families did not have enough savings to take care of an unexpected $400 expense.
Since the pandemic lockdowns, that number has grown as many Americans have been financially flattened.
A large portion of the population continues to live paycheck to paycheck, and the cost of a typical middle-class lifestyle is over 20% higher than two decades ago.
Inflationary forces continue to build as reflected in higher energy, food, retail, and transportation prices.
These hardships cause greater suffering among those with lower incomes.
Americans who find themselves in unexpected, cash-strapped circumstances often turn to unsecured personal loans to tide them over in tough times.
As my FreedomWorks colleague, Stephen Moore, recently wrote, a proposal to expand lending options called the True Lender Rule was implemented in the Trump administration.
This Rule provides certainty to banks and credit unions who want to partner with fintechs so that they can provide funding to those in need.
Banks and credit unions, especially mid-sized community and minority owned banks, have had challenges developing the technology and underwriting analytics to offer personal loans to consumers with non-prime credit ratings.
Similar to how Fannie Mae provides banks with technology, underwriting, and liquidity support to offer and sell mortgages, banks would have been able to partner with fintechs to do this with other types of loans.
Unfortunately, the Biden administration signed an order a few months ago repealing the True Lender Rule. This action only serves to restrict access to more flexible financial service options for those people that need it most.
Now, Democrats are proposing to restrict lending even further by extending the 36% interest rate cap under the Military Lending Act to all Americans. Numerous research studies have shown that the Military Lending Act does not work and has negatively impacted service members and their families. It actually restricts lending availability.
Expanding a rate cap to the entire nation during a time when credit is essential for consumers to manage disruptions in income and expenses would have disastrous consequences.
The Right-Reverend Council Nedd, archbishop of the Episcopal Missionary Church, suggests that liberal "loan saviors" who want to shut down short-term lending "have no plan for actually fixing your roof leak or getting your car repaired; not even a plan for creating an economic environment so that you can have access to the very credit cards that they take for granted."
Nedd says that instead of regulating online lenders — who have used technology to lower costs and more readily match lenders to the best loan options — the government should focus on expanding economic opportunity, not snuffing it out.
More than seven million American homes have no one with a bank account, and nearly half say it’s because they don’t have enough money to meet minimum balance requirements.
Many borrowers with less income and lower credit scores rely on non-bank credit for their loan needs. For those with only a high school degree, less than 40% of the loans they take out come from banks.
However, the free market is providing digital solutions with ever increasing frequency in spite of political roadblocks and government backtracking.
Technology transformation is profoundly impacting the financial industry and making creative financial tools available. Fintech provides hope that underbanked communities will have more access to loans and capital.
Compared to banks, fintech offers benefits that make it increasingly more popular.
No wait time for making transactions. It can be accessed remotely. Modes of payment are not limited and money can be transferred through many methods.
The growth of financial digital alternatives means that many more loans will be shifting to innovative online products that offer better terms. They typically offer loans between $1,500 and $10,000, with no requirement for collateral or a potentially intimidating meeting with a loan officer.
Access to quality credit can and should be improved.
Democrats have always favored big financial institutions and their lending programs and looked down on small-dollar consumer lending.
The lack of financial and technology expertise will leave them unprepared for the tsunami of change that lies ahead.
Free markets enhance the power of consumers providing them with a range of choices. The Biden administration is swimming against that tide with its reactionary rollback of new lending options.
Clara Del Villar is Director of Senior Initiatives at FreedomWorks.