Latest CFPB Study Shows Need for Small-Dollar Bank Lending

September 27, 2017

CBA’s Hunt: “We encourage the CFPB to work in coordination with other financial services regulators to create a consistent regulatory environment that does not take away the ability for families with unexpected financial hardships to seek responsible, short-term assistance from their bank.”

 

Washington, D.C. – Richard Hunt, President and CEO of the Consumer Bankers Association (CBA), today wrote Consumer Financial Protection Bureau (CFPB) Director Richard Cordray on the need for responsible rules allowing banks to help consumers facing unexpected financial hardships through short-term, small-dollar loans. The CFPB yesterday released a report finding more than 40 percent of Americans struggled at some point during 2016 to pay monthly bills. An earlier report from the Federal Reserve found nearly half of American adults say they cannot cover an unexpected expense of $400.

Hunt encouraged Cordray to keep these facts in mind when the CFPB issues small-dollar lending rules, noting that, “Bankers know consumers often need help when unexpected expenses arise and we want to offer safe, sustainable products during these times. Any rules for offering these types of loans need to provide for flexibility in underwriting and realistic expectations on product usage in order to meet a very specific need – fast, affordable, small-dollar loans … Unexpected bills, medical expenses or disasters – like hurricanes Harvey, Irma and Maria or the wildfires out West – highlight the need for consumers to access immediate, short-term financial assistance. We encourage the CFPB to work in coordination with other financial services regulators to create a consistent regulatory environment that does not take away the ability for families with unexpected financial hardships to seek responsible, short-term assistance from their bank.”

In the letter, Hunt also noted the difference in the types of small-dollar loans banks have provided as compared with those given through payday lenders.

 

The full letter is below:

September 27, 2017

 

The Honorable Richard Cordray

Director

Consumer Financial Protection Bureau

1700 G Street NW

Washington, DC 20552

 

Dear Director Cordray:

The findings in the Consumer Financial Protection Bureau’s first "National Financial Well-Being Survey” came as no surprise to Consumer Bankers Association members. Every day retail banks across the country work with customers to offer financial advice and provide cutting-edge products to help fulfill the financial needs of families and small businesses. From home mortgages to car and education loans, CBA members are committed to working with consumers. That commitment is paying off and your report shows a correlation in banking deposit accounts and financial well-being.

As the CFPB prepares to release a rule on small-dollar lending, we hope you keep this survey in mind. Bankers know consumers often need help when unexpected expenses arise and we want to offer safe, sustainable products during these times. Any rules for offering these types of loans need to provide for flexibility in underwriting and realistic expectations on product usage in order to meet a very specific need – fast, affordable, small-dollar loans.

Historically, federal banking regulators have encouraged banks to help finance these needs and some banks have chosen to do so with deposit advance products – carefully designed loans with strong safeguards, at reasonable prices for consumers and banks. Bank-offered deposit advance programs were well understood, well-liked by consumers who used them, and served an important role for consumers with short-term financial needs. These products had low default rates and offered protections that payday lending typically does not. In 2013, however, the OCC and FDIC proposed a very strict set of guidelines for banks offering deposit advance and the new guidelines all but eliminated the product.

CBA members agree that safeguards should be put in place to protect consumers and hold bad actors accountable. The answer, however, is not overly prescriptive rules that force consumers to borrow more money than necessary or place arbitrary caps on consumers who responsibly use – and repay on time – these products.

As you know, bank-offered deposit advance products and the services offered by non-depository payday lenders are very different. Unlike payday loans, deposit advance products have built-in controls designed to limit their usage. These controls include an established customer relationship and an analysis of the customer’s cash flow, limits on loan amounts, automatic repayment through a linked depository account, and “cooling” periods – all designed to keep customers from relying too heavily on the product and to ensure the customer’s ability to repay the loan.

Finally, CBA members have a pre-existing relationship with their customers before the loan and want to help customers so that relationship continues after the loan is paid. Unexpected bills, medical expenses or disasters – like hurricanes Harvey, Irma and Maria or the wildfires out West – highlight the need for consumers to access immediate, short-term financial assistance. We encourage the CFPB to work in coordination with other financial services regulators to create a consistent regulatory environment that does not take away the ability for families with unexpected financial hardships to seek responsible, short-term assistance from their bank.

Thank you for your time and consideration.

 

Sincerely,

 

Richard Hunt

President, Chief Executive Officer

Consumer Bankers Association

 

###

About the Consumer Bankers Association

The Consumer Bankers Association represents America’s retail banks above $10 billion in assets. We advance legislation and promote policies geared toward creating a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.6 million jobs in America, extend roughly $3 trillion in consumer loans, and provide $270 billion in small business loans. Follow us on Twitter @consumerbankers.