Consumer Financial Services: Separating Fact from Fiction

The COVID-19 pandemic and related economic impact are the latest tests to our country’s ability to provide financial inclusion and stability to all American consumers. In fact, a recent Federal Reserve study found that 35 percent of U.S. adults would have to borrow to cover a $400 unexpected expense, and a Bankrate survey found that less than four in 10 Americans could absorb the cost of an unexpected expense of $1,000.

But amid these challenging circumstances, myths and perceptions about consumer financial services – which spans diverse services like check-cashing to small-dollar lending – abound. INFiN, a Financial Services Alliance and the leading national association for the licensed consumer financial services industry, dispels some of the most common myths:

Myth: Consumer financial services and short-term, small-dollar loans have experienced a boom in use due to the pandemic. 

Fact: While regulated consumer financial services providers have been proud to provide essential services throughout the pandemic, this has been a challenging time for business.

Regulated consumer financial services providers play a vital role in the nation’s financial services landscape. That’s why federal and state governments designated our industry as “essential” throughout the pandemic, with INFiN members remaining open even when many other financial institutions were closed. For those customers INFiN members continue to serve, consumer financial services provide an important lifeline for them and their families, helping them to access wages and benefits, including stimulus payments; pay bills; aid family members and friends; and obtain credit.

While INFiN members are proud to be there for customers during this time of need, it has also been a difficult time from a business standpoint. INFiN members have implemented personal protective equipment and social distancing protocols inside storefronts to protect customers and employees, and have navigated staffing challenges. Visits to stores and transactions are down significantly. National database provider Veritec issued a COVID-19 impact report revealing that small-dollar lending volume was consistently and substantially down for much of 2020 relative to the same period in 2019, including a drop of nearly 70 percent last spring.

Myth: Consumers only use consumer financial services because they have no other options.

Fact: Consumers have a diversifying array of financial options, including for small-dollar credit, and choose the services offered by state-licensed, community-based providers because they make sense for their situation.

When confronting a gap in their finances, consumers weigh their options, from using credit cards, borrowing from family and friends, missing a payment, overdrawing their bank account, or using consumer financial services. A recent report from the Consumer Financial Protection Bureau (CFPB) notes that while not all consumers have multiple credit options, many do, including available balances on their credit cards. Still, they choose consumer financial services offered by INFiN members, finding these services to be simple, cost-competitive, discreet, and transparent – particularly when compared to the costs of their alternatives. Further, some financial services —such as check cashing, wire transfers, electronic bill payments, and low-cost money orders – are not available from other providers. And with state-licensed locations where consumers live, work, and shop, as well as online, INFiN members offer convenience, reliability, and a safe, regulated placed for conducting financial transactions.  

Myth: Consumers don’t like consumer financial services, especially short-term, small-dollar loans, and would be better off without them.

Fact: Actual consumer financial services customers appreciate, understand, and value these services, and federal and state regulators receive very few complaints.

The overwhelming majority of our industry’s customers are highly satisfied, as evidenced in survey research of actual customers as well as the positive feedback INFiN members receive from their customers every day. These positive reviews include small-dollar credit; in a survey by Global Strategy Group and Tarrance Group, 96 percent of real-world small-dollar loan borrowers found the loans useful. In addition, 94 percent found them to be a sensible choice and 96 percent said they fully understood how long it would take to pay off their payday loan and the finance charges they would pay.

Besides high levels of customer satisfaction, federal and state regulators consistently receive very few complaints about regulated consumer financial services. For instance, short-term, small-dollar “payday” loans accounted for just 0.3 percent of complaints received by the CFPB in 2020, amid skyrocketing complaints across other financial products and services. 


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