CBA Comment Letter on CPFI Hearing

Dear Chair Perlmutter and Ranking Member Luetkemeyer:

Thank you for your continued leadership as our nation rises to meet the challenges posed by the COVID-19 crisis and for your efforts to support consumers and our economy during this time. This letter includes our views on a number of legislative proposals scheduled for consideration during your Subcommittee hearing on Thursday, March 11 entitled “Slipping through the Cracks: Policy Options to Help America’s Consumers during the Pandemic.”

CBA is entering our 102nd year as the voice of retail banking in Washington, D.C. and strongly advocates for polices that allow banks to continue offering well-regulated services to families and small businesses across the country. We are the only member-driven trade association focused exclusively on retail banking. Whether buying a home, financing an education, or launching a small business, our members partner with consumers to help them achieve their unique dreams. Our corporate members include the nation’s largest retail banks serving every part of the country, 85% of which hold over $10 billion in assets. CBA members are also the private sector lenders that make the majority of private education loans to help families finance a postsecondary education. At this time of extreme uncertainty, our banks remain in strong financial condition and are stepping up to serve the needs of consumers and small businesses.

CBA member institutions are well capitalized and have worked diligently with consumers and small businesses since the very beginning of the COVID-19 pandemic to provide highly regulated financial products that helped to mitigate the financial challenges many are experiencing. The nation’s largest banks have donated millions of dollars, offered proactive assistance to communities and with your leadership worked to create the Paycheck Protection Program (PPP) in a matter of weeks to deliver billions to small businesses to meet payroll and cover their bills.

The unprecedented level of service our banks’ employees delivered over the past year is all due to the strong, well-regulated foundation banks have built up in the last decade. As we emerge and build back from the COVID-19 crisis our member banks will be focused on helping consumers and small businesses regain their financial footing and reach new levels of success. Key to those efforts will be working with your leadership to improve access to credit and opportunity for all Americans, including small dollar loans and other affordable, high-quality consumer financial products.

Included below are concerns we raise with the Committee on several bills under consideration in this hearing that will have unintended or negative impacts on individuals’ access to credit and other banking services, including student loans.

H.R. ___, the “Relief for Consumers During COVID-19 Act” (Beatty)
H.R. ____, the “Relief for Small Businesses and Nonprofits Act” (Perlmutter)

Throughout the COVID-19 crisis, banks have provided relief options to affected customers across the country. Fee waivers, forbearance programs, and loan modifications are commonly offered by banks to those customers experiencing hardship. Prudential banking regulators and general safety and soundness principles require in all instances that options to defer payments first take into account the borrower’s financial circumstances. This legislation would eliminate that step and make all consumers and small business eligible for relief regardless of need, fundamentally banks’ financial stability and reducing available resources to help borrowers truly facing hardship. At a minimum the legislation should consider the capital requirements associated with these proposals, as Congress did under Sec. 4013 of the CARES Act.1

H.R. ____, the “Disaster Protection for Workers' Credit Act” (Sherman)

Safe and affordable access to credit is based entirely on lenders’ ability to accurately price risk based on the best and most complete information available. Mispriced risk leads to negative credit terms for borrowers and ultimately undermines financial stability. Any effort to suppress or prohibit accurate consumer credit reporting standards creates unnecessary potential for harm to the consumer because it is shown as a break, or gap, in consistent credit reporting. Existing procedures have been in place since before the crisis began that ensure consumer credit reports are properly coded to reflect a continuation of service but prevent negative impact to an individual’s credit score because they were affected by the COVID-19 pandemic. These long-standing procedures are designed to protect both consumers and credit access.

H.R. ____, the “Emergency Relief for Student Borrowers Act” (Dean)
H.R. ____, “Private Loan Disability Discharge Act of 2019” (Dean)

The Emergency Relief for Student Borrowers Act would have the Secretary of the Treasury make the monthly payments for private education loan borrowers, regardless of need, for the rest of the COVID-19 national emergency and for the following six months. The amount paid would be a minimum of $10,000 or the total owed. This step would require extensive, complex coordination and across-the-board servicing system changes at a time when financial institutions, like other parts of the economy, are coping with workplace challenges. We also question if these payments are a good use of federal resources, since 98 percent of private student loans are repaid successfully, and the most recent delinquency rate was only 3 percent, indicating that, unlike federal student loan borrowers, private loan borrowers are successfully making payments. However, as we have stated in the past, should Congress decide to proceed CBA members will work with their affected customers and the Treasury Department to implement the policy and create a process for the government to make payments to lenders on behalf of their borrowers.

In addition, while well meaning, the Private Loan Disability Discharge Act of 2019 is unnecessary and would impose unhelpful bureaucracy into a situation where banks are already doing what the legislation would mandate. Currently, banks are discharging private student loans when the borrower becomes totally and permanently disabled. Adding a federal mandate with various extra steps and requirements will only hinder a well-functioning process and not provide any help to private student loan borrowers.

H.R. ____, “Ending Debt Collection Harassment Act of 2019” (Pressley)

The Fair Debt Collection Practices Act (FDCPA) is not intended to apply to banks, though many voluntarily comply through normal business practices. The CFPB confirmed this in rulemaking last year.2 Nonetheless we note that while the FDCPA does not apply directly to banks, it was modified last year to allow text and email communications between third-party debt collectors and customers under certain conditions. This change occurred in part because customers increasingly want to receive communications over text or email instead of phone calls or U.S. mail. The modifications did not impose a strict limit on those communications because it is hard to design a one-size-fits-all limit: what could be discussed in a 3-minute phone call could take 5, 10, or more text messages. The CFPB already has authority to punish debt collectors who abuse this privilege, and they have not hesitated to do so in the past. Provisions in this legislation requiring specific consent for texts and emails, and their frequency, will create confusing opt-in systems that will overall make it more difficult to reach customers over their often-preferred mode of communication.

H.J. Res. _____, Resolution of Disapproval on the OCC’s National Banks and Federal Savings Associations as Lenders Final Rule.

CBA supports the OCC True Lender rule3 that brings much needed clarity to the marketplace without sacrificing consumer protections. Opponents have mislabeled the “true lender” definition with usury claims based on the theory that the non-bank partner is the “true lender.” These claims assert that the non-bank partner is not a chartered entity and therefore cannot export the interest rate of its home state and, accordingly, the interest rate is usurious under a second state’s law. These challenges in the absence of regulatory authority created divergent standards for identifying the true lender based on outlier court opinions. This uncertainty in turn casts doubt on loans made under bank-fintech partnership models and threatened credit availability.

Under these circumstances the OCC has the obligation and the necessary statutory authority to promulgate rules to clarify which entity is the “true lender” under the National Banking Act (NBA). Clarity on this issue is important for a robust, competitive, nationwide lending marketplace and in no way relieves OCC-regulated banks of their existing legal and risk management responsibilities in their relationships with bank partners, including those detailing robust consumer protection standards. This rule benefits consumers, small businesses, and other borrowers who rely on access to credit to cover various expenses, start businesses, and engage in trade and commerce.

Thank you again for your decisive actions and leadership during this time. We look forward to working with you on all these proposals to ensure the best possible outcome for consumers and lenders.

Sincerely,

Richard Hunt
President and CEO