CBA Submits Comments on Small-Dollar Lending

January 24, 2019
Nick Simpson

 

CBA Submits Comments on Small-Dollar Lending

“A tremendous amount of attention has been rightfully given to the hardships furloughed federal employees are facing and banks have stepped up to the plate. But, for millions of Americans, the need for short-term assistance to meet emergency expenses existed before the shutdown and will exist after the government reopens.”

 

WASHINGTON – The Consumer Bankers Association this week submitted comments to the Federal Deposit Insurance Corporation’s request for information on its 2013 small-dollar guidance. The guidance, along with now-rescinded guidance from the Office of the Comptroller of Currency and a 2017 rule from the Consumer Financial Protection Bureau which is currently under review, seriously curtailed small-dollar bank lending and forced Americans in need of emergency funds to pawn shops, payday lenders and other less regulated sources of cash.

 

CBA’s letter commends the FDIC for examining the small-dollar marketplace and requests the FDIC rescind its 2013 guidance.

 

“A tremendous amount of attention has been rightfully given to the hardships furloughed federal employees are facing and banks have stepped up to the plate,” CBA President and CEO Richard Hunt said. “But, for millions of Americans, the need for short-term assistance to meet emergency expenses existed before the shutdown and will exist after the government reopens. Instead of turning to less regulated, more costly lenders, families should be able to rely on their bank for assistance. Banks are ready to help, just like they help customers facing hardships every day, but existing rules and guidance from federal regulators is standing in the way.

 

“We would like to thank the OCC, FDIC and CFPB for addressing this important issue.”

 

In the letter, CBA’s Associate General Counsel David Pommerehn writes, “Banks are in a unique position to help millions of Americans that need small-dollar credit.  Banks are thoroughly supervised, amply regulated and well capitalized institutions in which U.S. consumers will find fair pricing coupled with established consumer protections.  However, the overly restrictive approach currently offered by the Federal regulators will only lead to less depository participation, pushing consumers into more unfavorable alternatives with higher costs and less oversight.”

 

CBA also urged all the Federal banking regulators to work together to issue rules that:

  • are based on sound evidentiary conclusions, especially with regard to bank-offered products;
  • provide for reasonable and complete consumer protections;
  • provide for scalability and ease of administrative burdens to allow greater reach to the unbanked and underbanked;
  • provide an option for banks to offer small-dollar loans as a line of credit;
  • provide banks with a clear and easily applied standard that consumers will understand; and
  • allow for flexibility to meet consumer needs through innovative and competitive credit options.

 

A full copy of CBA’s letter is available here.

 

According to the Federal Reserve, nearly half of all American adults say they cannot cover an unexpected expense of

$400. Prior to 2013, some banks offered short-term, small-dollar lending products, known as the Deposit Advance Product (DAP), to meet overwhelming consumer demand for access to emergency credit. The 2013 guidance effectively eliminated the ability of heavily regulated financial institutions to offer a viable alternative to compete with payday lending because it recommended the use of underwriting more appropriately applied to a much larger mortgage loan. Since this guidance was issued and the CFPB released its rule, access to small-dollar credit through traditional banking systems has diminished, while the payday lending market has increased.

 

In the past, payday lending products have been inaccurately associated with bank-offered deposit advance products with little or no distinction in how bank-offered products allow for greater consumer protection and better customer pricing. A chart outlining key distinctions is below:

 

                                                                                                                                                              

 

 

 

NOTE: More information on assistance programs for furloughed federal employees is available here.

 

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 About the Consumer Bankers Association
The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.