Tag Archive | Federal Reserve System

Federal Reserve Study on Online Lending is not Legit

They say that you can use studies and statistics to prove anything that you want; regardless of whether what you are trying to prove is even legitimate. Such is the case with a recent study that the Federal Reserve did with regards to consumer dissatisfaction with online lenders. According to this study only about 15 percent of small business borrowers reported being satisfied with online loans they were approved to get. Here’s the kicker – that statistic doesn’t even accurately reflect the data collected in this study. But people are now being hit with headlines about how much small business owners detest online lending. The thing is, though, that it’s just not true. And the study is pretty much bogus from all appearances.payday-online

The stat that we just mentioned is actually a representation of how many people were satisfied versus dissatisfied. You can check this out by looking at the study’s footnotes. So, the 15 percent is actually a net satisfaction metric that indicates more borrowers were satisfied with their experiences with online lenders than dissatisfied. If you do the math, this statistic actually shows that more than 50 of borrowers reported being satisfied. Banks did score higher than online lending companies in this report, but with as unscientific as this study was it is difficult to tell if that statistic is bogus or on the level.

An Unscientific Study by the Federal Reserve

The Federal Reserve puts a lot of interesting information in the footnotes and fine print of their study. If you cut through all of the confusing information, here is what it really says:

Businesses get contacted via email from organizations that serve the small business community in participating Federal Reserve Districts.

The data are not statistical representations of small businesses.

By its own admission, the authors at the Fed are very clearly stating that the data was not random – in other words the data is biased and not representative of real world statistics. The report even opens up by saying, “Our hope is that this report contributes to policymakers’ and service providers’ understanding of the business conditions, credit needs, and borrowing experiences of small business owners.”

We can now see that the metrics used in this study don’t mean anything in the real world. But they are still being cited continuously. A report that the US Treasury published a few months ago even makes a direct citation of the 15 percent satisfaction metric. It’s a standard case of bad information being created and published and then running amuck.

So what’s next? Now that this bogus study is being quoted and used all over the place, how do we get to the truth of the matter at hand? We are now at a point where critics and supporters of the online lending industry are even starting to buy into the bogus statistic about only 15 percent of small businesses being satisfied with online lending. This conclusion has never been reached by a legitimate study. No one is looking at the fine print from the Fed’s report. Hopefully, people within the industry will begin to look closer at these types of reports to see if what is being represented is truthful. When powerful agencies, like the Fed are able to get away with pushing what are essentially biased reports to the general public, it is easy to understand why so many people are up in arms about the online lending industry. If those folks would actually look at the facts, however, they’d find out that more small business owners are satisfied than dissatisfied with the online lending industry. It seems that is not the kind of true story, however, that the Fed wants the public to know about.

Warren Continues to Stand in the Way of Dodd-Frank Reform

Making much needed changes to the landmark Dodd-Frank Bill would go a long way in helping to provide protection to consumers in the United States. Why is it that Liz Warren continues to prevent this type of reform from taking place?

Congress has been doubling its efforts to provide a budget arrangement that would help to prevent a government shutdown. Part of these efforts could and very well should be to come up with an amendment to the Dodd-Frank Bill that would help to provide much-needed reform. To get this done, the congress will have to get past the current objections to said amendment that have come from Senator Elizabeth Warren, herself.

Experts say that Warren should do all that she can to welcome an amendment to help reform Dodd-Frank, being as it would help to provide better protections to consumers; a cause that she has long been a champion of. Particularly, she has said that she wants to usurp the power of big banks in order to provide more power and stability to both consumers and smaller banks. Dodd-Frank has, indeed, helped to take away some of the power that the biggest banks have traditionally held. A complete overview of all of the ways this has happened is much broader than can be covered in a single article. One example, however, helps to describe how important this point is. The increased supervisory power that Dodd-Frank gave to the Federal Reserve Bank allows it to have a huge amount of control over what is described as “systematically important financial institutions. This control includes whether or not employees should be disciplined or even fired.

This extraordinary amount of power allows the Fed to get in far too deep with regards to the process of capital allocation. This is the very backbone of the United States economy. This could move our country from allocating capital strictly based on political sway and could help to take away the power of big banks and other systematically important financial institutions.

However, smaller banks have suffered a lot more than the bigger banks because of Dodd-Frank. These banks are drying up at double the rate that they were prior to the bill coming into play. Between October of 2000 and July of 2010 there were 242 banks that failed. But from then until the end of 2014 – a period that is less than half that length of time – there were 242 banks that failed. The big reason that so many small banks continue to fail is due to the burden that Dodd-Frank regulations have put on them. There are nearly 850 pages of regulations that these smaller financial institutions must contend with in order to stay in business. There are now more than 20,000 additional pages of regulations, and only 247 of the 390 that are currently required have been officially finalized. Staying on top of all these regulations requires the help of lots of lawyers. Big banks may be able to afford all of that legal assistance, but the smaller institutions simply cannot.

The bottom line is that if Warren really fancies herself to be a champion of the people, with regards to financial issues, then she must step up to the table and help in getting the new amendment passed. Failure to do so will wind up in more small banks going out of business and will ultimately mean that American consumers have even fewer banking options to choose from in the future. The ball is now in her court; experts hope that she will do the right thing and help to get the new reforms in place.