End the Yes/No Game of ‘Are You Lending?’

I am not sure it is even possible to quantify just how much bank lobbying dollars are being spent today trying to convince Capitol Hill that “banks are lending” – whatever that means.

This is not money well-spent. Firstly, it boils down a far more complex answer to the lending question to a “yes” or “no.” It is like stopping the average person on the street and asking him, “Yes or no, are you healthy?” Does anyone truly know?

Second, it puts every bank into a branding nightmare. If the answer is “yes,” then every rejected application pockmarks the lender’s brand. If the answer is “no,” well, then President Obama pockmarks the lender’s brand. There’s no win in this.

Here’s my suggestion: rather than say “yes” or “no,” define the lending criteria, at least to some degree. “We lend to consumers with X credit score” or “we make loans to small businesses with three years of positive cash flow of $X or more.”

This approach has the added benefit of being straight with consumers. Besides, such sharing of underwriting criteria happens unofficially anyway. Is there a loan officer who does not do a quick, informal, back-of-the-envelope pre-approval of any potential loan applicant? Of course not. Why not embrace the idea – and show that you’re different? At least, Obama can’t bug you after.

Sure, there are downsides to this open-air approach. The most obvious one being competitive. Lenders are little more than their underwriting criteria and showing them to the world includes showing them to competitors. That assumes your competitor doesn’t know your specs already – which is wishful thinking on the part of any bank executive. No, I think there is enough underwriting criteria that can be disclosed that will satisfy consumers, Capitol Hill and still preserve the secret sauce. Certainly, saving all those bank lobbying dollars should make it worthwhile, right?