CBA Proposals for Crapo-Brown Request

April 13, 2017

The Honorable Mike Crapo
Committee on Banking, Housing, and Urban Affairs
U.S. Senate
534 Dirksen Senate Office Building
Washington, D.C. 20510

The Honorable Sherrod Brown
Ranking Member
Committee on Banking, Housing, and Urban Affairs
U.S. Senate
534 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairman Crapo and Ranking Member Brown:

The Consumer Bankers Association (CBA) appreciates the Committee on Banking, Housing,
and Urban Affairs’ solicitation of legislative proposals intended to spur economic growth and
increase market participation. CBA is the voice of the retail banking industry whose products
and services provide access to credit to millions of consumers and small businesses. Our
members operate in all 50 states, serve more than 150 million Americans and collectively hold
two-thirds of the country’s total depository assets.

From underwriting loans to main street businesses to providing banking services to previously
un-banked or under-banked consumers, CBA member banks are integral to fueling the economic
engine that drives prosperity. The following legislative recommendations seek to either promote
sound financial regulation to enable the retail banking sector to continue to drive economic
growth and inclusion or empower consumers with the information necessary to make sound
financial decisions to ensure a successful economic future.

Bipartisan Commission at the Consumer Financial Protection Bureau

CBA strongly recommends transitioning the leadership structure at the Consumer Financial
Protection Bureau (CFPB or Bureau) from a sole director to a bipartisan, five-member
commission. A commission would provide a source of balance and stability for consumers, the
economy, and the financial services industry by encouraging internal debate and deliberation
from multiple leaders with diverse experiences and expertise. CBA believes such a governance
structure would ultimately lead to increased transparency and more bipartisan, reasoned
rulemakings and judgments, which would promote a vibrant financial services industry that is
capable fueling growth and promoting greater participation in the economy.

Background: The CFPB has unprecedented rulemaking, supervisory, and enforcement authority
over the entire consumer financial services industry. The Bureau’s vast jurisdiction includes an
entire sector of American finance from banks and credit unions, to innumerable financial
services companies of all sizes, including larger participants in the American financial system,
ultimately touching all Americans. Unlike a majority of the financial service regulators, a single
individual was tasked with the duties of directing such an important endeavor.

To preserve the CFPB as an effective regulator, with a mission to protect consumers regardless
of which political party is in the White House, Congress should return the CFPB to its originally
intended and planned structure, from a sole director to a bipartisan commission.

A bipartisan commission would provide a balanced and deliberative approach to supervision,
regulation, and enforcement for the long-term as well as offer a stable form of leadership.
Certainty is not only good for industry, it is also good for consumers and the economy. No
matter the action or rule the Bureau considers, having multiple viewpoints that must be heard
though a commission structure is more likely to strengthen consumer choice and increase
consumers’ access to credit.

Another factor that calls into question the single director model is the ever-changing political
landscape. Understanding that stability is a component of a healthy regulatory environment, a
single director structure susceptible to changing political viewpoints jeopardizes industry
certainty and makes it difficult for banks and credit unions to develop long-term plans to serve
consumers and small business.

In addition, a commission is the traditional and customary structure for independent federal
agencies, helping to ensure thorough deliberation, bipartisanship, and impartiality. Examples in
the financial services space include the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Securities and Exchange Commission, the Commodity Futures Trading
Commission, and the National Credit Union Administration.

The idea of a five-person commission has had bipartisan support and even originated in a
Democrat-led Congress. In 2009, then-Speaker Nancy Pelosi (D-CA) and then-House Financial
Services Chairman Barney Frank (D-MA) led passage of legislation in the House, with strong
Democratic support, which would have created a five-member commission to oversee the CFPB.
In addition, then-professor Elizabeth Warren, whose ideas led to the creation of the CFPB, also
called for a Financial Product Safety Commission (FPSC) during public debate over the
Agency’s creation – a proposal that was supported by President Obama.

In addition to Democratic support during the creation of the Dodd–Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), a number of Republican led legislative efforts have
attempted to replace the sole director model with a five-person commission. In the 114th
Congress, House Financial Services Committee Financial Institutions and Consumer Credit
Subcommittee Chairman Randy Neugebauer (R-TX) introduced H.R. 1266, the Financial
Product Safety Commission Act, modeled after the language that was originally included in the
House-passed version of Dodd-Frank in 2009. The House Financial Services Committee
approved H.R. 1266 with bipartisan support in late September 2015. Most recently, in
September 2016, House Financial Services Committee Chairman Jeb Hensarling (R-TX)
introduced H.R. 5983, the Financial CHOICE Act, which included the Neugebauer language,
creating a commission at the CFPB. In late September 2016, the Financial Services Committee
passed the Financial CHOICE Act.

Please find additional materials in support of a CFPB commission in Appendices A, B, and C.


Small-Dollar Lending

CBA recommends legislation to repeal Federal Deposit Insurance Corporation (FDIC) and
Office of the Comptroller of the Currency (OCC) guidance (2013-10101; 2013-0005) issued in
2013 related to small-dollar bank loans, known as deposit advance products (DAP). In addition,
we recommend legislation to require the CFPB to work in coordination with the prudential
regulators in issuing any rule or guidance related to small-dollar lending to ensure a consistent
regulatory environment that is conducive to small-dollar lending as opposed to one that pushes
already heavily regulated banks out of the short-term liquidity market.

Background: Prior to 2013, several banks offered DAP to meet overwhelming consumer
demand for access to emergency credit. Unfortunately, 2013 FDIC and OCC guidance
effectively eliminated the ability of heavily regulated financial institutions to offer a viable
alternative to compete with payday lending. The FDIC and OCC guidance recommended the use
of underwriting that is more appropriately applied to a much larger mortgage loan and placed
soft caps on percentage rates banks could offer consumers. This, combined with a low interest
rate environment, has made small-dollar credit unviable and has forced banks to exit the market.

Furthermore, the Bureau is prepared to finalize a proposed rule covering payday loans, certain
loans secured with a vehicle title, “high-cost” installment loans, and lines of credit that would
make it difficult for any lender to offer affordable, easy-to-use products.1 This small-dollar loan
proposal is incredibly prescriptive as it would effectively create a narrowly tailored product
designed to operate within a very constrictive regulatory scheme. In general, we find this
approach to be an inappropriate exercise of the CFPB’s Unfair, Deceptive, and Abusive Acts and
Practices rulemaking authority, as remedies for alleged unfair or abusive acts or practices should
be tailored to those practices observed and not used to dictate product offerings filled with
ancillary provisions that have little if anything to do with the alleged harmful practices.

Specifically, the Bureau’s proposal would require overly restrictive underwriting and unrealistic
terms of use, including limits on frequency of use and limited loan-to-income ratios. For
example, short-term loans (45 days or less) would require lenders to verify the consumer’s
income, “major financial obligations,” and borrowing history using third-party records. “Major
financial obligations” would include such obligations as housing payments, car payments, and
child support payments. Using this information, the lender would then have to make a
determination whether the consumer has the ability to repay the loan after covering other major
financial obligations and basic living expenses. This level of underwriting complexity ignores
the cost of providing this type of loan. These are small-dollar loans, not mortgages. Requiring a
high-touch level of underwriting will only result in pricing out would-be providers.

Additionally, consumers cannot afford to wait long periods of time for an underwriting decision
when they have emergency expenses that need to be paid.

Please find supporting materials in Appendices D, E, and F.

Section 1071 of the Dodd-Frank Act

CBA members anticipate a chilling of small business lending and compliance complications due
to the complex new data collection requirements under Section 1071 of the Dodd-Frank Act. In
order to prevent a reduction in small business lending and an increase in costly litigation that
could occur from the misuse of the information collected, CBA recommends the repeal of
Section 1071.

Background: Section 1071 of the Dodd-Frank Act amends the Equal Credit Opportunity Act to
create a Home Mortgage Disclosure Act (HMDA)-like set of requirements for business credit
applications. In brief, every financial institution must inquire of any business applying for credit
whether the business is a small business, or a women- or minority-owned business, maintain a
record of the information separate from the application, and report the information along with
related information about the application (location of business, action taken, amount of credit
provided, etc.), to the Bureau. The information must be made public on request in a manner to
be established by regulation, and will be made public annually by the Bureau. The Bureau is
given considerable flexibility to establish the requirements, define the scope, provide for
exemptions, and protect the privacy of individuals.

The potential for overly burdensome data collection requirements could stifle small business
lending, greatly increase compliance costs for small business lenders, open the door to costly
litigation, and duplicate existing law. Lenders will need to revamp lending systems and
processes in order to collect the required data, adding cost to compliance. The net result will
limit the resources banks have to make loans and add greatly to compliance burdens and risks, a
negative for small business lending.

Please find supporting materials in Appendices G, H, and I.

Systemically Important Financial Institution Designation

CBA recommends replacing the Dodd-Frank Act’s arbitrary $50 billion systemically important
financial institution designation threshold to one that is based on the complexity, scale, and
activities of a financial institution. Subjecting financial intuitions that do not pose a significant
threat to the economy to heightened reporting and stress testing requirements places an
unnecessary burden that redirects vital capital and staff resources towards compliance, ultimately
reducing lending to communities and businesses.

Background: The current asset threshold is a flawed approach used by the Financial Stability
Oversight Council (FSOC) to assess the risk an institution poses to our financial infrastructure.
Requiring FSOC to evaluate a number of factors beyond asset size will provide more accurate
risk profiles of institutions and lead to better judgements of whether institutions should be
declared systemically important. A risk-based approach to designation would lessen capital and
compliance constraints on larger institutions currently captured by the $50 billion asset threshold
that do not participate in activities deemed to pose systemic risk to the financial system.

Please find supporting materials in Appendices J and K.


Know-Before-You-Owe Federal Student Loans

CBA recommends applying the Truth In Lending Act (TILA) disclosure regime to federal
student loans. Providing student borrowers and their families with clear disclosures about their
loan terms will help to promote sound financial decision-making and prevent over-borrowing,
which will enable these consumers to be more active participants in the economy.

Background: Today, student loan debt stands at $1.4 trillion – second only to mortgage debt.

Nearly 93 percent of this mountain of debt is federal loans, mostly held by the U.S. Department
of Education. A Wall Street Journal analysis of New York Federal Reserve and Department of
Education data showed at the beginning of the 2016 more than 40 percent of federal student loan
borrowers were either behind on their payments or not making any at all. About one in six
borrowers were in default, having gone more than a year without making a payment. Given
these staggering numbers, Congress should focus its resources on preventing repayment
problems before they start by empowering student loan borrowers to make educated financial
decisions and avoid too much debt. Simply put, it is time for a “know-before-you-owe”
initiative – similar to the CFPB’s work on mortgage disclosures – for federal student loans.

Access to information about the true cost of a loan is critical to making an informed decision
about how much debt to take out. Unfortunately, federal borrowers must weed through more
than a dozen pages of disclosures and squint to read fine print to unearth some of the key loan
terms. The Department of Education’s loan disbursement disclosures fail to provide terms
specific to individual borrowers, instead offering broad categories of interest rates and fees and
ranges of estimated monthly payments, and lack information on the total expected cost of the

Private lenders are required by the TILA to provide customers with clear and conspicuous
disclosures of loan costs and terms before loans are disbursed. The interest rate, loan fees,
annual percentage rate, monthly payment amount, and total cost of the loan, among other
important terms specific to the individual borrower are boldly displayed. This information
allows borrowers to make informed decisions about the loans that are appropriate for their higher
education needs. Federal student loan borrowers deserve the same kind of concise, meaningful
information about their future obligations before they owe as is provided to private borrowers.


CBA stands ready to work with Congress to craft a regulatory framework that safeguards the
American consumer, ensures access to credit and promotes competition in the financial
marketplace. On behalf of the members of CBA, we appreciate the opportunity to submit these
legislative proposals.


Richard Hunt
President and CEO
Consumer Bankers Association


View full letter and appendices