Now the chief executive of the Financial Services Innovation Coalition (FSIC), former Rep. Joe Baca (D-Calif.), sent a letter to CFPB Director Richard Cordray on Tuesday highlighting potential loopholes in regulations aiming to protect unbanked or under-banked consumers.
The organization focuses its work on the 70 million Americans who do not use the traditional banking system and instead tend to rely on more costly means of managing money. Payday loans, which are used for a short-term boost, can carry interest rates of more than 300 percent.
“The CFPB is well-positioned to shine a spotlight on the growing network of micro-lenders – both for profit and non-profit – who are providing affordable credit solutions that are profitable for the lender while being careful not to trap consumers in excessive, long term agreements that harm their family balance sheets,” Baca writes.
Micro-loans became most popular in third-world countries, helping empower women to start their own small businesses, but there has been a growing effort to bring the lending style to the United States.
In his pitch to get Cordray involved, Baca said that micro-lending could “bridge the gap between the short term, or transient, credit needs of the more than 70 million unbanked consumers who seek affordable credit solutions with the business interests of those who service models offer reasonable rates for this consumer class.”