By Laura Adams
Over the past few years, the increasing rise and adoption of “cryptocurrency loans” has offered consumers new financial freedom and opportunity; This is thanks to the advantages of blockchain technology and decentralized financial protocols. Cryptocurrency lending creates tremendous opportunities for local, national, and state businesses, and most importantly, consumers. It is an industry that not only creates jobs and reduces corporate financial costs, but also ensures access to capital for individuals in underserved communities and helps create a new set of investment opportunities for all operators. By allowing people to use their crypto assets as collateral to borrow money, crypto lending is revolutionizing the lending industry by giving access to consumers who have been left out of traditional lending for far too long. According to the Federal Deposit Insurance Corporation’s (FDIC) National Survey of Poor and Unserved Households, more than 6% of American households—or a total of 14.1 million American adults—do not have a bank account; Furthermore, according to data from the Consumer Financial Protection Bureau (CFPB), 45 million Americans are considered “credit invisible”; This means that they either have no credit score or have very little credit history, without enough information to create a credit score.
With crypto loans, consumers who are unable to obtain a traditional loan due to a minimum bank deposit or a low credit score have alternatives available to them; Additionally, consumers can also lend their crypto assets, depositing them into an interest-bearing account to generate negative returns.
As in any new industry, there are companies that provide good service and good products to their customers and others that often do not. The bad players currently operating in the crypto lending industry can do great harm not only to individuals but to the industry as a whole.
When a borrower goes to a cryptocurrency lender, he must have a set of expectations as a consumer; For example, they must be confident that the Department of Justice or the financial regulator in their state will sue bad actors for the same abusive practices seen in traditional loan markets, such as misleading advertising and marketing; Moreover, cryptocurrency lenders should proactively implement best practices to inform and protect those who wish to take advantage of these new and innovative ways to access capital.
Just as with traditional lending through banks and other institutions, all consumers of cryptocurrency loans should expect some protection. These include:
- To be able to review the terms and conditions of the loan agreement in a comprehensive and easy to understand written form.
- Receive appropriate notice before a cryptocurrency lending company changes the terms and conditions, suspends services, or liquidates any part of a consumer guarantee.
- You have the ability to contact the customer service of the cryptocurrency lender and receive a response in a timely manner.
- Receiving sufficient information from the crypto lender, including the status of ownership of the escrow and whether the lender is licensed by the relevant regulatory authorities.
- Ensure that the consumer warranty is not subject to unimaginable contractual clauses.
As the crypto-lending industry continues to grow and greater opportunities and risks are perceived, the industry needs to monitor consumers and act fairly; We know that massive laws and regulations are likely to prevent innovation in such a relatively new industry, but by educating consumers and holding crypto-lending platforms accountable for current consumer protection measures and safe lending practices, we can encourage innovation and ensure greater awareness of the opportunities created by this industry. stunts.
Laura Adams, MBA, is a nationally recognized US expert in personal and business finance and a member of the Digital Asset Advocacy Group (DAAG). DAAG is a non-profit organization that promotes secure and regulated digital currency lending, custodians, and other consumer financial practices.
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