By Laura Adams
Over the past few years, the rising growth and adoption of “crypto lending” has provided consumers with newfound financial freedom and opportunity thanks to the benefits of blockchain technology and decentralized financial protocols.
Crypto lending creates tremendous opportunities for local and national businesses, state and federal governments and — above all — consumers. Not only does it create jobs and reduce financial costs for businesses, but crypto lending provides access to capital for individuals in underserved communities and helps establish a new pool of investment opportunities for all participants.
By allowing individuals to use their crypto assets as collateral to borrow cash, crypto loans are revolutionizing the lending industry by giving access to consumers that have been shut out of conventional lending for far too long. Over 6% of U.S. households, or a total 14.1 million American adults, are unbanked, according to the National Survey of Unbanked and Underbanked Households by the Federal Deposit Insurance Corporation (FDIC). And according to data from the Consumer Financial Protection Bureau (CFPB), 45 million American adults are considered “credit invisible,” meaning they either have no credit score or thin credit files without enough information to create a credit score.
With crypto lending, consumers unable to secure a traditional loan because of the bank’s minimum deposit requirement or a low credit score now have options available to them. Not only that but consumers can also lend their own crypto assets, depositing them into an interest-bearing account to generate passive returns.
As with any new industry, there are companies that provide good service and products to their customers and, unfortunately, there are often others that do not. The bad actors currently operating in the crypto-lending space have the opportunity to do much harm — not just to individuals but to the industry as a whole.
When shopping for a crypto lender, borrowers should have a number of expectations as a consumer. They should be able to have faith their state’s attorney general or financial regulator will go after bad actors in the crypto-lending industry for the same abusive practices we witness in traditional lending markets, including deceptive advertising and marketing. Crypto lending companies must also proactively implement best practices that inform and protect those who desire to take advantage of new, innovative ways to access capital.
Just like with traditional lending through banks and other institutions, all crypto loan consumers should expect certain protections. These include:
- Reviewing the terms and conditions of a loan agreement in a complete and easy-to-understand written format.
- Receiving adequate notice before a crypto lender modifies terms and conditions, suspends services, or liquidates any portion of the consumers’ collateral.
- Having the ability to contact a crypto lender’s customer service and receiving a timely response.
- Receiving proper disclosures from a crypto lender, including the ownership status of collateral and whether the lender is licensed by the proper regulatory authorities.
- Certainty that the consumers’ collateral is not being subjected to unconscionable contract terms.
As the crypto-lending industry continues to grow and more opportunity as well as risk is realized, the industry must keep a watchful eye and do right by consumers. We know voluminous laws and regulations will likely inhibit innovation in such a relatively new space. But by educating consumers and holding crypto-lending platforms accountable to existing consumer protections and safe-lending practices, we can encourage innovation and ensure greater awareness of the opportunities created by such an exciting new industry.
- Laura Adams, MBA, is a nationally recognized personal finance and business expert and Digital Asset Advocacy Group (DAAG) member. DAAG is a not-for-profit organization promoting safe and regulated digital currency lending, depository and other consumer financial practices.
