While the Consumer Financial Protection Bureau believes paydaylending needs to be reformed, financial technology, community banks and credit unionscould be an alternative to the lenders, CFPB Director Richard Cordray told the SenateCommittee on Banking, Housing and Urban Affairs on April 7.
"Nobody wants to cut out people's ability to get one ortwo loans when they need them," he said.
The CFPB is expected to issue a payday lending in the coming months.
Cordray pointed to the National Credit Union Administration'spayday loan alternatives, which allow credit unions to offer loans to members inthe amount of $200 to $1,000.
"We think it's a good product, and we want to make surethat there's room for that under any regulations we would adopt," he said.Community banks should also be allowed to have similar types of loans, he added.
Cordray also thinks there are a lot of opportunities for paydayalternatives through fintech.
"Whatever fintech innovations occur, we will want them tobe consumer-friendly and we will be mindful of that and watchful for that,"he said.
As fintech expands, regulators are taking note. The CFPB a policy on Feb. 18 thatallows staff to issue no-action letters to applicants where there is uncertaintyon the application of the agency's regulations to "innovative financial productsand services that promise substantial consumer benefit." The agency also issuedits first consent order against a fintech company, Dwolla Inc., on March 2. TheCFPB alleges that the payment system provider misrepresented consumers about itsdata security practices.
The enforcement action was a reminder to all industries thatthey should "at a minimum, deliver on your promise to your customers,"Cordray said at the hearing.
The CFPB isn't the only regulator taking note of fintech. TheOCC issued a white paperon March 31 that outlines eight ways the agency plans to implement fintech regulation,including potentially opening a new office dedicated to innovation. Comptrollerof the Currency Thomas Curry saidin an April 7 speech that the agency was approaching fintech innovation with "healthyskepticism."
Cordray told the Senate committee that it will be "interestingto see how [fintech] develops."
"We're trying to stay on top of it because if we fall behindit this could dramatically affect markets over time," he said.