How Subprime Lenders Can Profit from CFPB Rules in 2017

I’ve been working for lenders for 30 years now, and I have helped them face a wide variety of new regulations. What surprises lenders most is that I can almost always find ways for them to profit from a new rule or regulation. This new CFBP rule is no different.

The incoming presidential administration has hinted at changing the law responsible for forming the CFPB, or to immediately remove the CFPB director. Regardless if either happens, a lender’s top priority remains to be compliant with the latest government rules and regulations for electronic payments, and identify opportunities to maximize your business profitability.

Here are four ways your billing and payments operation can comply with (and benefit from) CFPB’s small dollar loan rule:

1. Send regular loan statements to consumers
   According to a recent What to Expect Next from the CFPB webinar audience poll, more than 60% of installment lenders are currently not sending loan statements. The CFPB’s recent rules make it likely that lenders will have to provide a monthly loan statement to borrowers, whether by regular mail or electronically. It’s actually a smart and profitable move for all lenders, regardless of regulation. Loan statements increase the chances consumers will remember to pay.  Moving to the next generation of loan statements, interactive loan statements, enables lenders to deliver targeted messages with cross-selling opportunities to help your business grow. 
2. Get permission again after two failed ACH payments
   After two failed ACH payment attempts, a consumer finance company must get express authorization from the borrower before making another ACH attempt.  This creates additional friction in the transaction and a bad customer experience.  It can also result in additional overdraft charges to the consumer which is a cause of consumer complaints. Lenders should prioritize debit card payments in these instances, which immediately reveal if sufficient funds are available.
3. Notify consumers 3 days in advance of payment attempt
   Whether by mail or electronic communication, lenders must give consumers 3 days written notice in advance of a payment attempt, including attempt details, to allow borrowers to make sure sufficient funds are available. Like loan statements, these reminders are potentially profitable opportunities to lower delinquency rates and reach customers with targeted messages about additional products. Lenders can even bring in additional revenue by selling advertising space.
4. Do not refinance if payments are over 7 days delinquent
   This rule creates a new urgency for lenders to offer multiple options that will make timely payments possible, However, 75% of lenders were already adding new payment options before CFPB regulations because doing so increased dollars collected by 15%.

Looking forward to 2017

Consumer finance companies need to comply with all rules and regulations. However, lenders can also view this time as an opportunity to enhance your customer’s experience, lower your service delivery costs and create new, targeted, interactive means of adding consumer touch points though the deployment of an interactive statement. We look forward to 2017 being a year where lenders not only avoid fines, but also find ways to implement changes that grow their bottom lines.