While the vast majority of Americans possess checking and savings accounts, use credit cards, and finance major purchases with loans, a surprisingly large share of Americans struggle with barriers to opening and maintaining financial accounts. 

Everyone loves the party game “Two Truths and a Lie.” Can you identify which of the three following statements about lending services is a lie?

A. Unbanked and underbanked consumers are among the most vulnerable populations in America.

B. Fintech firms act as barriers to expanding access to banking for Americans.

C. Regulatory interventions, including interest rate caps, can harm unbanked Americans.

Let’s take these statements one at a time: 

A. TRUTH. A large share of Americans struggle with barriers to opening and maintaining financial accounts, making life more difficult in an increasingly cashless society—particularly during rising inflation. Without access to alternative lending services, people are forced to turn to the black market and be even less likely to have access to banking and loan products.

Non-Asian minorities, low-income households, less-educated households, young households, and households with disabled members are more likely to be unbanked than others. An estimated 5.4% of U.S. households (approximately 7.1 million) were unbanked in 2019.

B. LIE. Online fintech platforms serve as intermediaries with customers, providing otherwise unattainable financial services to community banks and their clientele, many of whom are historically marginalized communities. 

Fintech partnerships between small community banks and technology firms allow banks to offer the range of tech products and services that consumers need and expect. The True Lender Rule, signed by the Trump administration and repealed by the Biden administration, made it easier for the partnerships between fintech platforms and banks to serve vulnerable customers. 

C. TRUTH. The current national interest rate cap plan proposed by the U.S. Senate Banking Committee of 36% would hurt the ability of low-income Americans—especially racial minorities, immigrants and young people—to tap loans that pay for bills like water and electricity. 

If lawmakers successfully kill off short-term lending in its current form, these borrowers will still need access to credit—this would force them to use even more pricey avenues, including even higher-priced overdraft protection, bouncing personal checks or underground market alternatives. For lower-income Americans, these alternatives to installment or “payday” lending could push them over a financial edge.

Instead of capping interest rates, policy makers should revive the True Lender Rule, or provide additional regulatory relief, which would assist consumers in accessing community banking and affiliated technology services. 

Bottom line: 

Unbanked and underbanked consumers are among the most vulnerable populations in America. With this understanding, public policies should be developed which help rather than hinder access to financial services. Overheated rhetoric through inaccurate analogies and demonizing financial service providers does not solve the issue of unbanked and underbanked Americans’ financial needs. While consumer protections are obviously important and necessary, in today’s regulatory climate, too often the supposed treatment to protect consumers ends up harming consumers instead.   

To learn more about lending services in the U.S., check out our policy focus: Protecting Lending Services For Unbanked, Low-Income Americans.