By Jer Trihouse: Raj Date, a former director of The CFPB has formed a consultancy to focus on bank sponsored payday loan/small dollar loan products. He’s quoted as saying, “Is it a product that is expensive because it can be? Because overdraft sets a price umbrella, and traditional payday sets a price umbrella,” so banks say, ” ‘Whatever, just a little bit lower than that.’ But that doesn’t mean that pricing won’t come in if there’s competition.”
In the piece at American Banker, Mr. Date goes on to say, “Developing a better short-term loan is “the single most promising thing” in the portion of the consumer financial industry that serves low-income and other financially underserved customers.”
In essence, Mr. Date states that he thinks banks are simply charging more than they need to. Banks have the luxury of having a “captured customer, access to more credit data decisioning tools, superior marketing tools and lower fraud costs and a much lower cost of capital.” (He’s certainly correct regarding his last point! Banks can access capital from the Fed for less than 1%!) “So, there is nothing about the product that isn’t cheaper than the alternatives, overdraft and traditional payday.”
There’s just one point Mr. Date fails to acknowledge. A bank cannot compete with a nimble, entrepreneurial enterprise employing the multitude of credit decisioning tools already available to small dollar lenders, employment of social media, 24/7 loan proceed delivery channels, smart phone web site presence and most importantly, the millions of relationships we small dollar loan providers already enjoy with our customers.
Read the entire American Banker piece here: EX-CFPB Director launches Payday Loan Consultancy