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Former top finance regulator to Feds: Don’t cut off short-term credit to consumers

Former top finance regulator to Feds: Don’t cut off short-term credit to consumers

A former top financial industry regulator is warning the Consumer Financial Protection Bureau (CFPB) that proposed new regulations could inadvertently destroy “a lifeline of credit for millions of responsible, low- and middle-income Americans.”

In a column for American Banker, William M. Isaac, a former chairman of the Federal Deposit Insurance Corp. (FDIC), wrote that he hopes the CFPB will heed his “words of caution while promulgating new rules on small-dollar lending.”

The CFPB is drafting new rules that many financial experts, lenders, members of Congress, regulators and others fear will restrict the type of short-term loans used responsibly by millions of Ohioans.

“Without a better understanding of (lenders) business models, profitability, loss rates, volume and overhead costs, regulators cannot possibly create a product that ensure consumers get the credit they need and deserve,” wrote Isaac, now senior managing director and global head of financial institutions at FTI Consulting. “Most research suggests the overwhelming majority of borrowers need credit because of a family emergency; a temporary, unexpected cash shortfall; or an occasional manageable gap between paychecks.

“Right now most of these consumers are getting credit when they need it,” Isaac continued. “Regulators must be careful that they do not destroy this supply of credit while trying to help the much smaller percentage of borrowers who probably should not be getting credit at all.”

Read Isaac’s column on the American Banker website.

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