By Colin Barrett, President/CEO, Tennessee Bankers Association
During a recent parent teacher conference, I learned that my son, William, shared with his second-grade class that “payday lenders take advantage of people in our community.” He’s a smart kid. And not just because of his uncanny ability to parrot his father. Yet while it is easy for me to deride payday and other alternative lenders, their existence is meeting a need for many people.
In May 2018, a widely circulated report from the Federal Reserve found that 4 out of 10 adults would not be able to cover an unexpected $400 expense. While many in the media and inside the D.C. Beltway were surprised by this statistic, Tennessee bankers were not. I am confident that every one of you has multiple examples of customers, family members, or neighbors who have been in this situation. And many of you can remember when your bank could make small-dollar loans to assist during those times. Unfortunately, due to increased compliance burden, the regulatory agencies have all but removed banks’ ability to make these loans, which has pushed people toward alternative lenders.
Regaining the ability to make small-dollar loans has long been a topic of discussion between TBA and our members. I have heard countless examples of bank customers getting trapped in a cycle of debt from alternative lenders that they have not been able to get out of. In many cases, the bank helped customers pay off these loans and get back on their feet. And while this is commendable, proactively addressing these needs is a much more desirable option.
About 18 months ago, a group of bankers met with Commissioner Greg Gonzales and Rafael Valle, the head of Tennessee compliance for the FDIC, to discuss how banks could make small-dollar loans without the fear of regulatory scrutiny. Another important consideration was how to make this solution turn-key—one of the benefits of cash advance lenders. This would cut down on the amount of time needed to satisfy regulatory concerns as well as free up staff time for what are seldom profitable loans.
In our research, we identified CashPlease, which met these criteria. CashPlease, a product by Velocity Solutions, is an automated small-dollar, short-term loan platform that allows consumers to apply for loans 24/7 on their bank’s branded CashPlease website or through a mobile app. Loan amounts generally range from $100 to $1,500, and do not require a traditional credit check. An ability to repay determination is made by Velocity’s data driven algorithm. Consumers know immediately whether they are approved for a loan, and if so, the funds are deposited directly into their account. This quick access to funds not only keeps customers out of the debt cycle with alternative lenders, but it provides an opportunity for banks to compete with the ever-increasing number of fintech companies that are looking to deliver similar products.
After doing our due diligence on CashPlease and Velocity, as well as visiting with our federal regulators, the bankers involved and the TBA determined this product could assist with the small-dollar lending challenge and moved forward on a partnership. As a result, we are able to bring CashPlease to TBA member banks with no implementation fee and only a per loan fee for the bank. Combine this with the limited amount of staff time required to implement, and I believe the industry has a viable option to compete with alternative lenders throughout the state.
If you are interested in learning more about how to meet your customers' and communities' needs through small-dollar lending, I encourage you to contact Alex Schuettler at firstname.lastname@example.org.
Meanwhile, the TBA will continue to work with bankers throughout the state to strengthen your industry and the customers you serve.