Two sides of a coin

So to speak . . .

I follow coverage about the role major banks are playing in supporting Internet-based payday lenders. Among my concerns are the insane interest rates and the ability of such lenders to automatically withdraw payback straight out of a bank account, sending the account into perpetual overdrafts. And then there’s the question of location when it’s an internet lender. Where does a victim of deceptive practices go to find justice? The state of the lender or the state of the borrower? Or somewhere else?

The underlying technology is where I see a two-sided coin. Big advancements in online authorizations and flow of payments can greatly improve financing opportunities. That’s the good news. One example is “digital factoring” startups that can make up for the significant time that passes between when a small business invoices a big customer and the big customer pays.

The bad news is first that it is amazingly easy to get sucked into a predatory situation “on steroids.” The speed at which an account can be pinged to withdraw even a micro-payment, means the borrower gets into insufficient fund territory with limited ability to put things on hold or revoke authorization altogether.

Advocates for victims of such practices are doing what they know to do best–lobby for tighter regulations. This will surely play out as it has so many times before. One side says only regulations will protect people from predatory lenders and the lenders will say, once again, that innovations in financing options are being shut down for a few bad situations.

I’m not writing this to take a side in this particular battle. At least not at this point. The seed I want to see planted is harnessing the power that is the Internet to create self-regulating communities around new financing products. Can we see something like a payday borrowers network emerging that rates lenders and exposes harmful practices? Wouldn’t some bankers be willing to step forward and provide great educational content that helps consumers make better decisions about this sort of thing or at least monitor and manage it?

Just a thought from a recovering lawyer!

Let me know what you think of new financing options as well as the potential for self-regulating online communities.


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