Yet, we have 73 million men and women who live with the constant fear that a financial hiccup will trigger a need for money that they don’t have and most likely can’t get. While the Feds are making easy money, it’s going to those with near perfect credit scores which leave many of these 73 million Americans scrambling for other options. In other words, while interest rates are at an all time low, money still isn’t available to those that need it the most.
In a recent study, Serving Consumers’ Needs for Loans in the 21st Century, author Michael Flores finds that neither banks nor alternative financial services providers are extending loans in the $750 to $5,000 range. It’s not complicated to understand, despite benefiting from the Feds’ easy money, loans of under $5,000 simply aren’t profitable for banks. Even if such loans were to exist, many customers wouldn’t qualify. On the other hand, alternative financial services (AFS) providers can’t fill the space because of the burdensome costs of complying with 50 distinct sets of state regulations.
Still, Mr. Flores suggests that it is AFS providers who are in a better position to extend credit to low- to-moderate-income consumers because they have built a more efficient and technology-driven model, that is if regulators can come up with a new banking model. The alternative financial services market is currently limited mostly to payday loans, pawn, or title. With the right regulatory framework, however, AFS providers are capable of expanding into longer-term credit options better suited for many consumers’ needs.