By Matt Bivons
The Consumer Finance Protection Bureau's recent declaration that it was preparing to crack down on junk fees can be interpreted in two ways (for more on the CFPB's announcement, see The New York Times, https://nyti.ms/3p0bo13).
On the one hand, the move will, no doubt, add to an already heavy regulatory burden. On the other, it is an argument for the industry to open up its "black boxes." I'll explain in this article why I believe a more transparent industry will serve lenders and borrowers alike.
A failure to communicate
Consider the following data from eMarketer ( https://bit.ly/3oZDzgL):
To paraphrase the captain in the movie Cool Hand Luke, what we seem to have is a failure to communicate—and both borrowers and lenders are feeling unjustly punished as a result.
From the borrowers' perspective, they are getting surprised by fees they didn't expect to pay, and their information is being shared without their consent. From the lender's perspective, the terms of each product are clearly spelled out, and it is the borrowers' responsibility to read the fine print.
Can we meet in the middle? The answer is a resounding yes!
One of the major impediments to better lender/borrower communication has been traditional loan management and servicing technology. Agents using a legacy platform typically have to switch between multiple screens and applications just to piece together a partial customer view. In most cases, batch processing guarantees that the information available to agents is out of date.
As a borrower, I experienced this first hand when I tried to close out a credit card. Some months later, I discovered my credit score had dropped. The closed card had accumulated late fees for interest that had carried over from mid-cycle. I called my bank to find out what I owed. The agent said the bank couldn't tell me until the cycle ended the following month.
My bank didn't want to infuriate a customer. On the contrary, the bank wanted to help. But the customer service capabilities are only as good as the loan management and servicing software used to manage the bank's credit card program. The bank accepted its limitations because at the time it was an industry standard.
That is no longer the case. Modern loan management and servicing platforms can generate statements in real time. And, unlike the legacy platforms they are replacing, they don't overwrite the events that happen in the life of a loan, so the accuracy of those statements can be verified. (This is called immutability.)
Modern loan management and servicing platforms also enable real-time communication with borrowers through their preferred channel. Rather than surprise a long-time customer with a stellar repayment record with an overdraft fee, a bank that is using a modern platform could send them a text message warning that there is not enough money in their account to cover an upcoming recurring payment.
There are so many ways that modern platforms can enable borrowers and lenders to work together. They are the result of thoughtfully combining mobile technologies with API-first platforms, machine learning, design thinking, and agile programming methodologies.
Whether the CFPB moves to impose additional regulation or not, newfound transparency in credit and lending is likely to ensure that punitive surprises—like the under-reported interest and unexpected late fees that I experienced—will become part of the past. The movement toward more open, communicative relationships has been gathering momentum. I think it is unstoppable.
Matt Bivons is CEO of Atlanta-based Canopy Servicing, a comprehensive, configurable platform providing infrastructure for managing and servicing all of a fintech's debt, credit and lending products in one place. To reach Matt, please visit linkedin.com/in/mbivons or https://canopyservicing.com/contact.
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