Online Lenders Alliance Promises to Watch for “Bad Actors”
A major trade group for the online lending industry announced last week that it would ramp up its monitoring of bad actors in the sector. The goal? To help raise the good actors.
In an example of an industry group taking regulation into its own hands, the Online Lenders Alliance has started policing lender websites after Google moved to block ads promoting payday-loan companies from appearing in search results.
“We’re trying to be the cop on the beat,” OLA Chief Executive Lisa McGreevy said to the Los Angeles Times. “We’re not interested in having bad actors or people who do fraudulent business giving our good lenders a bad name.”
Earlier this month, Google announced that it would no longer display misleading loan ads, specifically for products with short-term repayment cycles and high interest rates.
These loan offerings, critics say, draw many consumers into a deep, costly trap.
“We have found that borrowers face steep, hidden costs to their online loans in the form of unanticipated bank penalty fees,” Consumer Financial Protection Bureau Director Richard Cordray said in comments reported by the Times in April.
Cordray referenced a CFPB report that found that borrowers often have to pay an overdraft bank fee when lenders take a scheduled loan payment.
OLA says it wants to help to crack down on such unscrupulous behavior. An outside firm is building an automated search program, which will find lender websites that tout loans with “no credit check” and make other misleading claims to borrowers.
“When sites have one thing wrong, they probably have other things that are noncompliant,” McGreevy said, such as misleading statements that don’t meet OLA’s rules. If such problems are found, she said, the alliance will express its concerns to the company. If the lender doesn’t adjust its practices, OLA will share the lender’s identity with members and report the lender to law enforcement.
The new program replaces monitoring that OLA previously did manually, McGreevy said.
If the online lending industry can work past these problems, there could be a lot of potential for future growth.
“The potential benefits of this convergence between financial services, enabling technologies, and the firms that produce them are immense,” the Financial Services Roundtable recently told the House Financial Services Committee, according to Financial Advisor.
But as American Bankers Association CEO Rob Nichols noted at the hearing, online lenders have a reputation problem, registering only a 15 percent satisfaction rate compared to 75 percent for bank lenders.
OLA’s McGreevy said her association has to be out front in fixing these problems.
“Staying on top of it is a constant monitoring challenge,” McGreevy told the Times. “It takes every part of our industry to look at what’s happening.”