In July 2018, the US Treasury Department proposed a decision on financial stability, showing the administration’s perspective on non-bank financial institutions such as online lenders. Following this, The New York Times reports the response from the Office of the Comptroller of the Currency, giving these so-called fintech companies more leeway.
According to this new charter, fintechs which do not take and hold deposits can apply for approval to operate. Other rules and regulations apply to these financial firms.
The Need for Online Lenders
In light of the recent talks regarding the funding of the proposed border wall, the federal government has been in partial shutdown since the 22nd of December 2018, as reported by The Guardian. Attorney Adam Minsky foresees that the shutdown will affect student loan borrowers, as it will impact the operations of the Internal Revenue Service. Minsky emphasises that individuals needing to apply and recertify for student loans will need to communicate with the IRS.
Online Lending as a Solution
For individuals in need of short-term loans, CNBC suggests using alternative options such as home equity and credit card cash advance. One of their recommendations includes getting personal loans, which can be provided by online lenders. According to CNBC, this option does not entail loaning money in exchange for valuable property. Instead, borrowers can do so by fulfilling the eligibility requirements of the lending institution.
These types of loans come in smaller loan amounts and shorter terms, which can be paid using automatic payments. With this in mind, potential borrowers can use this option during the federal shutdown.
On the issue of issuing a national charter to non-bank entities, a challenge foreseen by experts is the potential prevalence of fraudulent online firms, as reported by the New York Times.
As of today, the shutdown is still in effect, ceasing non-essential federal functions. The Guardian reports that this can go on for “months or even years” as stated by the US President should the demands for $5.7 billion in funding for the border wall remain unresolved.