After this contentious election, it seems that we are more divided than ever. Although President-elect Donald TrumpDonald TrumpStowaway found in landing gear of plane after flight from Guatemala to Miami Kushner looking to Middle East for investors in new firm: report GOP eyes booting Democrats from seats if House flips MORE has promised to unite us, many Americans feel left behind. Many have never had it better, while millions are unemployed or underemployed. The stark reality is that everyday folks are struggling.
According to the Federal Reserve’s latest report on the economic well-being of U.S. households, 31 percent are struggling to get by, 46 percent wouldn’t be able cover $400 in emergency expenses, 31 percent of working Americans have no retirement savings and 55 percent earning under $40,000 are spending as much or more than they make.
Being unable to sock away enough for a rainy day, save for retirement or keep up with day-to-day expenses leads to more and more Americans becoming underbanked. Without intervention, these numbers will continue to increase. Our middle class will all but disappear.
In times like these, consumers need more credit options, not fewer. Unfortunately, misguided policy and corporate paternalism are creating a perfect storm for subprime Americans.
President-elect Trump should consider several easy-to-implement steps that will restore credit access and create a “sandbox” for innovators to create cheaper financial products for underserved consumers.
Enable innovation with a regulatory sandbox
Regulations are supposed to create fairness and parity in a marketplace, not existential threats to innovators. When innovation disrupts a marketplace and creates a seismic shift in how products are offered, business owners may find themselves in an uncomfortable gray area between compliance and regulatory risk.
“Compliant or not compliant?” is the question. The answer frequently comes in the form of a civil action or cease and desist.
Although the Consumer Financial Protection Bureau (CFPB) has attempted to protect innovation with their “Project Catalyst,” the innovators are nervous. The CFPB’s safe zone is time limited and non-binding, which does little to reassure skeptical entrepreneurs.
By creating a safe ”sandbox” with protections for those who innovate, the new administration will embolden innovators to create more affordable financial products for the underbanked.
Create bright lines on unfair and deceptive practices
Falling for an inaccurate clickbait headline can be frustrating, but when financial services providers use verbiage designed to win customers at the expense of accuracy, such behavior becomes deceptive and predatory.
Online search results are filled with personal loan ads offering thousands or more in emergency cash. While writing this article, I saw one ad for “$35,000 loans for any credit type.” No lender in their right mind will lend $35,000 to someone with poor credit history without verifying the ability to repay.
However, rather than addressing these “bright line” examples of unfair and deceptive acts and practices, many regulators seem more interested in using unfair, deceptive, or abusive acts or practices (UDAAP) as a subjective regulatory hammer.
The practices intentionally blur the line between legal and illegal conduct to win big fines and judgments under the auspices of “returning funds to those harmed.”
The Trump administration should limit UDAAP actions to what they are intended for—protecting consumers from bona fide predators—not shaping the marketplace through regulatory activism. There should be maximum transparency over UDAAP-generated fines to keep bureaucrats accountable.
Reign in Google’s ban on payday lending ads
Google’s latest attempt to “help” credit-challenged consumers has been a disaster. The company’s prohibition on short-term loan advertising, which launched in July, has failed, and consumers are worse off because of it.
Before the ban, consumers experiencing a financial emergency and lacking better options could search Google for needed credit products including personal and unsecured loans.
Underbanked folks were able to review and select from a list of providers as part of a robust marketplace, full of diverse credit options and flexible loan matching services. Lenders competed aggressively to create a convenient and secure borrowing experience for customers. Fees were disclosed prominently, and consumers were able to weigh the cost of these pricey short-term loans vs. the short-term benefits.
Unfortunately, Google’s recent ban on ads for payday loans has driven most legitimate financial services companies to other marketing channels. Some less scrupulous lenders and marketers have simply begun skirting Google’s rules in an attempt to get around the ban.
Due to grossly inadequate policing by Google, potential loan applicants are now inundated with deceptive advertising, misstated loan terms and conditions, and spammy, fake “review websites” that give the illusion of choice, but deliver little more than broken promises.
Google implemented this new policy despite the fact that their venture capital sister company invests in short-term lenders. Google and its parent company Alphabet are profiting from this double standard. They need to hear once and for all that enough is enough.
Trump should launch an investigation into Alphabet and Google’s conduct to determine if consumers or innovation are being harmed. Where are the antitrust hawks when you need them?
Like so many Americans, the underbanked feel forgotten and left behind. By taking these few simple steps, the Trump administration can send a loud and clear message that everyone has the right to safe, affordable, and innovative credit products, not just the privileged minority.
Mark Curry is founder and chief executive officer of SOL Partners, an industry leader in technology, risk and marketing consulting for the financial technology sector.
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