[Senate Hearing 113-814]
[From the U.S. Government Publishing Office]
S. Hrg. 113-814
PAYDAY LENDING: SHORT-TERM SOLUTION
OR LONG-TERM PROBLEM?
=======================================================================
HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
JULY 24, 2013
__________
Serial No. 113-9
Printed for the use of the Special Committee on Aging
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SPECIAL COMMITTEE ON AGING
BILL NELSON, Florida, Chairman
RON WYDEN, Oregon SUSAN M. COLLINS, Maine
ROBERT P. CASEY JR, Pennsylvania BOB CORKER, Tennessee
CLAIRE McCASKILL, Missouri ORRIN HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island MARK KIRK, Illinois
KIRSTEN E. GILLIBRAND, New York DEAN HELLER, Nevada
JOE MANCHIN III, West Virginia JEFF FLAKE, Arizona
RICHARD BLUMENTHAL, Connecticut KELLY AYOTTE, New Hampshire
TAMMY BALDWIN, Wisconsin TIM SCOTT, South Carolina
JOE DONNELLY Indiana TED CRUZ, Texas
ELIZABETH WARREN, Massachusetts
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Kim Lipsky, Majority Staff Director
Priscilla Hanley, Minority Staff Director
CONTENTS
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Page
Opening Statement of Chairman Bill Nelson........................ 1
Prepared Statement........................................... 120
Statement of Ranking Member Susan M. Collins..................... 2
Prepared Statement........................................... 128
PANEL OF WITNESSES
David Silberman, Associate Director, Research, Markets, and
Regulations, Consumer Financial Protection Bureau.............. 4
Mark Pearce, Director Division of Depositor and Consumer
Protection, Federal Deposit Insurance Corporation.............. 11
Eric Wright, Staff Attorney, Maine Bureau of Consumer Credit
Protection..................................................... 18
Annette Smith, Deposit Advance Consumer/Social Security
Beneficiary.................................................... 42
Rebecca Borne, Senior Policy Counsel, Center for Responsible
Lending........................................................ 47
Dennis Shaul, CEO, Community Financial Services Association of
America........................................................ 72
Richard Hunt, President and CEO, Consumer Bankers Association.... 86
APPENDIX
Prepared Witness Statements and Questions for the Record
David Silberman, Associate Director, Research, Markets, and
Regulations, Consumer Financial Protection Bureau.............. 7
Questions submitted to Mr. Silberman......................... 136
Mark Pearce, Director Division of Depositor and Consumer
Protection, Federal Deposit Insurance Corporation.............. 13
Eric Wright, Staff Attorney, Maine Bureau of Consumer Credit
Protection..................................................... 20
Annette Smith, Deposit Advance Consumer/Social Security
Beneficiary.................................................... 45
Rebecca Borne, Senior Policy Counsel, Center for Responsible
Lending........................................................ 50
Dennis Shaul, CEO, Community Financial Services Association of
America........................................................ 74
Richard Hunt, President and CEO, Consumer Bankers Association.... 89
ADDITIONAL STATEMENTS FOR THE RECORD
Board of Governors of the Federal Reserve System................. 138
Consumer Financial Protection Bureau............................. 141
Federal Deposit Insurance Corporation............................ 186
FDIC Quarterly, 2010, Volume 4, No. 2............................ 208
Community Financial Services Association of America.............. 222
Nick Bourke, Director, Safe Small-Dollar Loans Research Project,
The Pew Charitable Trusts...................................... 225
Lisa McGreevy, President and CEO, Online Lenders Alliance........ 229
Andrea Luquetta, Esq., Policy Advocate, California Reinvestment
Coalition...................................................... 231
PAYDAY LENDING: SHORT-TERM SOLUTION OR LONG-TERM PROBLEM?
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WEDNESDAY, JULY 24, 2013
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2:07 p.m., in
Room SD-562, Dirksen Senate Office Building, Hon. Bill Nelson,
Chairman of the Committee, presiding.
Present: Senators Nelson, Wyden, Donnelly, Warren, Collins,
and Heller.
OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN
The Chairman. Good afternoon. We have an important subject
to discuss today, payday loans and other short-term lending
products and how they impact seniors, and especially how they
impact seniors' Social Security income.
The marketplace for these products has evolved rapidly,
just in the last several years. We have been aware of these
storefront payday lenders, which have been around for some
period of time, where people can bring a pay stub or proof of
income into a store and get an advance on their next paycheck
while paying a very high premium in fees for the privilege. But
now there are additional players in this market. Some online
lenders and even now big banks are offering seniors these
short-term loans.
The Center for Responsible Lending just released a report
showing that one in four users of the bank payday loan known as
a deposit advance, one in four, 25 percent is a Social Security
recipient. Well, think about how the math works on this, or how
it does not work for seniors with fixed income and fixed
expenses.
Seniors take one of these deposit advances out because they
cannot make ends meet or they have some sort of emergency--
health issue, car problems, you name it. Then when their next
Social Security check arrives, that amount they borrowed plus
very high fees are automatically deducted before the money even
hits their bank account. So how do these senior citizens get
through the month when they still have all the same expenses
but their income is cut, in some cases, we will hear in
testimony, potentially cut in half, for the rest of that whole
month?
The answer in most cases is, what happens? The cycle
repeats and they borrow again and again. And some people even
borrow from a variety of different sources, from storefronts,
from banks, and online lenders.
Take the case of Annette Smith, who has traveled here and
she will testify in the second panel. She has traveled here all
the way from California to tell just how hard it is to get out
from under this cycle of debt. She took out a $500 loan about
five years ago, and in the same time since, she has gone back
to her bank 63 times to secure a deposit advance, paying out a
total of around $3,000 in fees and interest for a $500 loan.
Or, consider the story of Donna Johnson, a grandmother. She
is from Ocoee, Florida. She managed to break a two-year payday
loan debt trap only after receiving insurance money associated
with her husband's death.
We are grateful to Ms. Smith for being here today, and she
is going to talk about her financial struggle.
And we also want to thank the regulators for joining us to
talk about why they are considering stepping into this market.
This is a critical time for these products, and we want to hear
from the Consumer Financial Protection Bureau and the Federal
Deposit Insurance Corporation about what they have seen from
these loans and the regulatory power that they already have to
protect these customers and these consumers.
Well, one thing is clear. Millions of Americans with poor
or no credit have a need for money in emergencies, and the
focus of this committee clearly is our senior citizens who are
in that position.
But how can we make sure that the products available to
these people, especially the seniors, will not trap them in the
cycle of debt? We brought all the parties involved here this
afternoon to see how we can answer this question. While
everyone agrees payday lending and deposit advance products are
many times necessary, and they are expensive forms of short-
term credit and borrowing, we must ensure that they are
properly overseen with adequate consumer protections and
safeguards against predatory lending.
And so we have two very fine panels of witnesses today.
Thank you all.
I turn to our Ranking Member, Senator Collins.
OPENING STATEMENT OF SENATOR SUSAN M. COLLINS
Senator Collins. Thank you very much, Mr. Chairman, for
holding this hearing to examine the impact of payday loans on
American consumers and for assembling such an impressive group
of witnesses.
I am particularly pleased that the committee will be
hearing today from Eric Wright, an attorney with the Maine
Bureau of Consumer Credit Protection. Since the Bureau was
first established in 1975, it has earned a well-deserved
reputation as the leader in the field of consumer credit
protection. Some two decades ago, I had the privilege of
overseeing the Bureau when I served as Maine's Commissioner of
the Department of Professional and Financial Regulation for
five years. It was a wonderful experience and I am delighted to
have a witness from the Department here today.
Payday loans are typically unsecured, closed end, small
dollar amount loans of short duration with high upfront cost.
Repayment of the loan is typically structured as a single
balloon payment tied to the borrower's next paycheck or some
other regular source of income, such as a Social Security
check. Payday loans are usually made without underwriting, in
other words, without a credit check or any other attempt to
determine the borrower's ability to repay.
In years past, the borrower would simply give the lender a
check to be cashed on the borrower's next payday, which
explains why this kind of financial arrangement came to be
known as a payday loan. Today, however, it is more likely that
the borrower will authorize the lender to draw the funds
directly out of the borrower's savings or checking account on a
preset date.
Studies show that payday loans are relied upon by low-and
moderate-income customers who need the short-term flexibility
that these loans provide or who have poor credit ratings and
simply cannot get a traditional bank loan or a credit card.
According to a study by the Federal Reserve, two-fifths of all
households considered underbanked have used payday loans, and
most of those households have done so in the past year. By
contrast, only one out of 20 fully banked households has ever
taken out a payday loan.
While payday loans can provide consumers with a useful way
to get cash quickly when they need it, the high cost built into
the loan, the fees can make it difficult or impossible for low-
income borrowers to repay them. Too often, then, the consumer
gets trapped into a cycle of debt and then may be subjected to
aggressive, even abusive, collection practices.
For many years, the Maine Bureau of Consumer Credit
Protection has been able to protect my constituents from the
worst of these abuses largely because Maine State law tightly
regulates unsecured consumer debt and requires lenders who wish
to provide these products to register with the State and abide
by legal limits on fees and interest rates. For these reasons,
Maine's experience with payday lenders differs from those of
other States. Storefront payday lenders have not been much of a
problem in Maine as they have been elsewhere. Banks also are
not a source of abusive payday loans in the State of Maine. In
fact, Will Lund, the longtime Superintendent of the Maine
Bureau, who came to work at the same time I did for the
Department, has told me that the Bureau has never fielded a
consumer complaint over a payday loan when the lender was a
State or Federally-licensed bank.
But that does not mean that Mainers are not victims of
abusive payday loan practices. With the advent of the Internet,
online and offshore lenders have direct access to Maine
consumers. Not a day goes by when the Bureau does not get a
call from the victim of an unscrupulous online lender who has
been trapped--who has trapped the consumer into paying off a
loan that was never legal to offer in the State of Maine in the
first place, and that is what is so frustrating. For Maine to
try to protect consumers against these offshore or online
lenders is very difficult.
I understand that online payday loans still make up a
minority of payday loan volume nationally, but I will predict
right now that it will continue to grow and may eventually
overtake storefront lending, particularly if States start
following Maine's example and regulating payday lenders more
closely.
This raises troubling issues, since online lenders
typically get authorization from their borrowers to draw funds
directly from their bank accounts. Since so many of the abusive
payday loans affecting Maine consumers were made by online
lenders, this is a topic that I am particularly interested in
exploring with our regulators today.
Again, Mr. Chairman, thank you so much for calling this
important hearing.
The Chairman. Thanks for your personal perspective on this.
All right. The first panel. First, we are going to hear
from David Silberman. He is Associate Director for Research,
Markets, and Regulations at the Consumer Financial Protection
Bureau, what we refer to as CFPB.
Then, Mark Pearce, the Director of the Division of
Depositor and Consumer Protection at the FDIC.
And then to hear our guest, our witness from Maine, Eric
Wright, a Staff Attorney for the Bureau of Consumer Credit
Protection for the State of Maine.
So, Mr. Silberman.
STATEMENT OF DAVID SILBERMAN, ASSOCIATE DIRECTOR, RESEARCH,
MARKETS, AND REGULATIONS, CONSUMER FINANCIAL PROTECTION BUREAU
Mr. Silberman. Chairman Nelson, Ranking Member Collins, and
members of the committee, thank you for the opportunity to
provide you with an overview of the Consumer Financial
Protection Bureau's recently released white paper on payday
loans and deposit advance products.
This is perhaps the largest study to date on the short-term
small dollar loan market. With this paper, the Bureau
endeavored to provide all stakeholders with a shared set of
facts on this market. What the Bureau found is precisely what
Senator Nelson and Senator Collins were describing, that too
often, consumers are finding themselves caught in a extended
and costly period of debt, likely as a result of chronic cash
flow shortages.
A little bit of background. In January 2012, the Bureau
added payday lenders to its supervision program. We held a
field hearing that month, our first field hearing as a Bureau,
to hear directly from consumers and lenders and we began to
study these issues, resulting in our white paper issued in
April.
Our study found that payday and deposit advance loans lead
many consumers into long-term expensive debt burdens. For far
too many consumers, payday and deposit advance loans are traps.
Returning every two weeks to reborrow the same dollar amounts
at a high cost becomes a drag on the financial well-being of
consumers already facing income shortfalls.
The findings in our study were developed from information
obtained from a number of storefront payday lenders covering a
12-month period. For each account with activity in the first
month of the study period, we then studied all activity over
the full 12 months. Similarly, our deposit advance findings
were developed from information obtained from a number of
depository institutions offering this product. And for this
group, we examined for a 12-month period a random sample of
accounts that were eligible to receive a deposit advance during
the first month of our study or during the previous quarter.
So allow me to summarize some of our key findings. First,
we found that a fairly small segment of consumers using payday
loans or deposit advances do so on an occasional basis. For
example, 13 percent of the borrowers in our study took out
only--payday borrowers in our study took out only one or two
loans over 12 months, and 18 percent of the deposit advance
borrowers obtained total advances of $750 or less over 12
months.
However, a much larger group of consumers used payday or
deposit advance on a sustained basis. Forty-eight percent of
the borrowers in our study took out 11 or more loans over 12
months, and 52 percent of deposit advance borrowers obtained
advances totaling $3,000 or more. Fourteen percent of payday
borrowers had 20 or more loans during that 12-month period, and
the same percentage of deposit advance borrowers were advanced
more than $9,000 over 12 months.
Many of these loans are taken on a nearly continuous basis,
particularly for consumers who take out seven or more payday
loans or obtained more than $3,000 in deposit advances. Most
frequently, new loans are extended the same day or within a
week or two of a prior loan being paid back. These consumers
are unable to get to the next paycheck or the next regular
infusion of cash without borrowing again.
While most consumers in our study report income from
employment, 18 percent of the payday borrowers reported public
assistance rather than employment as their source of income,
and these consumers were more highly concentrated toward the
lower end of the income range as compared to the borrowers with
income from employment.
Although payday loans and deposit advances are sometimes
described as tools to enable consumers to avoid either
incurring overdraft fees or bouncing a check, in our deposit
advance study, we were able to observe the relationship between
the use of deposit advances and the incidence of overdraft and
non-sufficient funds, or NSF, fees. And what we found is that
65 percent of those who took out a deposit advance also
incurred at least one overdraft or NSF fee during the 12 months
of the study. This percentage increased as the usage of deposit
advance increased. It increased, going from 45 percent for
light users to 83 percent of the heaviest users having one
overdraft or NSF fee. And, similarly, the number of overdraft
or NSF fees also increased with deposit advance usage, from an
average of seven for light users to an average of 16 for the
heaviest users.
The Bureau is concerned that many consumers use these high-
cost products in a sustained way. Lenders do not currently
assess whether a borrower can afford to repay a loan and the
fees while meeting their other expenses. Because the entire
loan is generally repaid or due to be repaid in each pay cycle,
it appears to be hard for many consumers to repay the loan and
meet other expenses without experiencing another shortfall,
taking out another expensive loan, and/or overdrawing an
account. Financial products that trigger a cycle of debt can
exacerbate the precarious balance of consumers' financial
lives.
The Bureau's white paper underscored significant consumer
protection issues in the small-dollar loan market, and as we
have said, further attention to these products is clearly
warranted. The Bureau intends to continue its inquiry into
small-dollar loan products to better understand why some
consumers are able to use these products in a light or moderate
way while others seem to find themselves trapped in prolonged
borrowing cycles. We also would like to better understand the
effectiveness of limitations that have been put into place by
State laws and by providers, limitations designed to curb the
sustained use that can lead to adverse financial consequences.
As the Bureau looks to next steps, we will determine how
best to exercise our authorities to protect consumers while
still enabling access to affordable credit. The Bureau will
work to make sure that consumers can get the credit they need
without jeopardizing or undermining their finances. As Director
Cordray has said, debt traps should not be part of consumers'
financial futures.
In closing, I just would like to thank the committee for
its continuing work to protect older Americans. Protecting
older consumers' financial well-being is one of the Bureau's
most important missions. Our Office of Older Americans is
working to help the approximately 55 million consumers age 62
and older lead safer and more productive financial lives. And
as the older population dramatically increases the next two
decades, we are likely to see an increase in the number of
older consumers facing financial challenges, bringing
substantial urgency to your work and to ours.
So, again, thank you for the opportunity to share the
Bureau's findings. I would be happy to respond to your
questions.
[The prepared statement of Mr. Silberman follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. And, Mr. Silberman, we want to know from you
in the questions what are those next steps and when are we
going to see some results by virtue of your regulatory power on
the protections.
Mr. Pearce.
STATEMENT OF MARK PEARCE, DIRECTOR, DIVISION OF DEPOSITOR AND
CONSUMER PROTECTION, FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Pearce. Chairman Nelson, Ranking Member Collins, and
members of the committee, thank you for inviting the Federal
Deposit Insurance Corporation to participate in today's hearing
related to payday loans.
I am pleased to have the opportunity to share our recently
proposed guidance on deposit advance products, which are quite
similar to payday loans, as well as to discuss the FDIC's
research and perspective related to payday loans, small-dollar
credit, and older Americans.
Recent FDIC survey results show that in the previous 12
months, almost six percent of households obtained credit from
an alternative financial service provider, such as a payday
lender or a pawn shop. For a household headed by someone 65 or
older, the proportion was nearly two percent, and for
households headed by a person between 55 and 64, the proportion
was nearly four percent. Our research also indicates that among
those who use alternative credit products, households headed by
a person 55 or older account for 17.5 percent of all users of
those products.
In 2003 and again in 2005, the FDIC provided guidance to
the institutions we supervise regarding the risks associated
with offering payday loans. The guidance provided our
supervisory expectations that institutions offering these
products should monitor customers' use of payday loans and
avoid making recurring short-term payday loans to customers
with long-term credit needs and to take other steps to
appropriately manage the risks of offering these loans.
Recognizing that consumers need access to small-dollar
loans to handle unexpected emergencies, the FDIC has sought
opportunities to encourage financial institutions to offer
responsible small-dollar loans. In 2007, the FDIC issued
guidance to encourage financial institutions to offer
affordable small-dollar loans. This guidance encourages
institutions to offer products that are affordable and
structured with payments that reduce principal rather than
repayment in one immediate lump sum.
In addition to this guidance, we initiated a pilot program
to demonstrate the feasibility of small-dollar lending by
financial institutions in a safe and a sound manner. The loans
made part of this pilot program were for $2,500 or less and
they met certain common standards. The loans had to be 90 days
or longer in term. They had to have an Annual Percentage Rate
of 36 percent or less. And in addition, banks utilized
streamlined underwriting to establish that consumers could
reasonably be expected to make their loan payments and have
sufficient funds remaining to meet their basic living expenses
and other obligations while still providing a loan decision to
them typically within 24 hours.
Twenty-eight financial institutions with assets ranging
from $28 million to nearly $10 billion participated in our two-
year pilot. Participating banks made over 34,000 small-dollar
loans for a total of approximately $40 million. The performance
of these loans were shown to be in line with the performance of
other unsecured consumer credit products, and the pilot
concluded that it was feasible for banks to offer such loans in
a safe and sound manner.
Since we issued guidance on payday loans and affordable
small-dollar loans, we have observed that a small but growing
number of large financial institutions have begun to offer
products that share characteristics with payday loans. These
products, called deposit advances, are typically open-end lines
of credit that have high fees, very short lump sum repayment
terms, and limited or no analysis of the consumer's ability to
repay the loan without subsequent borrowing.
Our concern was heightened when we became aware that third
parties had begun to market these deposit advance products to
smaller community banks that had not traditionally offered
payday loans or similar products.
Although the products and practices appeared to be
concentrated in a limited number of institutions, we thought it
was important to be proactive to develop guidance to ensure
that FDIC-supervised institutions that were considering
offering these products were aware of the significant safety
and soundness and consumer protection risks associated with
these products.
In April, the FDIC issued proposed guidance that outlines
the credit, reputational, legal, third party, and compliance
risks related to these products, as well as our expectations
regarding how institutions can manage those risks. In
particular, our proposed guidance details our expectation that
institutions will engage in prudent underwriting to determine
the borrower's ability to repay the loan without the need for
recurring borrowing. We have received over 100 comments on our
proposed guidance from a variety of stakeholders, including
some members of this committee. We are carefully reviewing
these comments as we work to finalize our guidance.
Thank you again for the opportunity to testify today on
this important topic. I would be happy to answer any questions
you might have.
[The prepared statement of Mr. Pearce follows:]
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The Chairman. Be thinking about the question, since you
started this with your pilot in 2007. It is like the camel's
nose getting under the tent and it has blossomed into something
that is not in the interest of the consumer, where they are
paying 300 percent. You put a limit on the annual rate that you
testified and here we are going to have testimony that some of
these banks that you are one of the regulators are charging
upwards of 300 percent in fees and interest. So we would like
to know what you can do about that.
Okay. Mr. Wright, please proceed, and welcome from Maine.
STATEMENT OF ERIC WRIGHT, STAFF ATTORNEY, MAINE BUREAU OF
CONSUMER CREDIT PROTECTION
Mr. Wright. Chairman Nelson, Ranking Member Collins, and
members of the Special Committee, thank you for your invitation
to appear.
We at the Bureau of Consumer Credit Protection in Maine
deal with the brutal reality of Internet-based payday lenders
every day. Early last week, a consumer from Monticello in
Senator Collins' home county called us to say that she has
eight payday lenders hot on her heels, most from Internet-based
Tribal lenders. She is in a real pickle.
Previously, another woman had called to say that she owed
$16,000 on six loans. Another consumer may tell us--did tell us
that having already paid, say, $750 on a $300 loan, she
reported, ``now they are telling me that I still owe the $300
that I borrowed.''
A consumer in Gardiner, where my office is located, near
Augusta, the State capital, recently complained, ``They have
been harassing me, calling me at work. I have asked them to
stop, but they will not.''
For them, horrors. For us, another day at the office. When
such calls are routine as they are, something is very wrong.
Here is a snapshot.
As Senator Collins pointed out, lenders in Maine must be
licensed to make payday loans lawfully. The Internet-based
payday lenders are never licensed and interest rates that they
charge are excessive under Maine law, so their loans are
illegal. This does not mean that the consumer has no obligation
to pay back the principal borrowed. One has at least a moral
obligation to do so. But it does mean under our unlicensed
provisions of our law that the consumer does not owe any
interest on the amount he or she has borrowed.
Many callers--probably most--have multiple payday loans.
They often take out one, then a second to pay off the first,
then a third to pay off the second, and so on. These debts can
go on endlessly, because all the money that is being paid if
one does not pay back the loan fully on the first maturity date
goes to paying interest and the loans just drive people deeper
and deeper into debt.
When the consumer has been paying--what the consumer has
been paying, as I say, is only interest, associated fees,
finance charges, and automatic rollover costs, whereby the
lender asserts that the consumer has, often without knowing,
obligated himself or herself to pay new loans.
The consumers often have been bullied and tormented by
collection calls and threatened with all manner of impending
doom, and these are real examples. If they do not pay it now, a
court action will be filed. If they do not pay it by credit
card by 2:00 p.m., the caller will send someone to the
consumer's home or workplace to deal with her to the fullest
extent of the laws in her county. If they do not pay by 4:00
p.m. today, they will be arrested. They are threatened with
jail or fraud of a financial institution. They are told their
wages will be garnished, or that their driving privileges will
be suspended or revoked, or that their employer will be
notified of their debt status, or that the lender will notify
the credit bureaus, thus damaging their credit.
Now, we deal with these situations in two primary ways, or
two primary circumstances. One is often before the principal
has been paid off and the other is after the principal has been
paid off. In either event--or let me go back and talk about the
first. The first is to make sure that the consumer understands
that he or she must pay off the loan, and we tell the consumer
how to do that, and it is certainly not to pay by personal
check but rather by a bank check and tell the lender, this is
how I will pay, and that gives the lender to refuse if they do
not want to accept that method. And we direct the consumer to
be sure that they are telling the lender that this is at the
direction of State regulators.
If consumers have paid back more than they borrowed, they
should consider the debt satisfied and they should, at our
advice, close the bank account, their bank account that the
lender has been debiting. In Maine, no payday lender has ever
brought suit against a borrower who refuses to continue to pay
more and more. Legally, they cannot do so, because as foreign
businesses--that is, out-of-State businesses--they are not
registered to do business in the State and so cannot maintain,
under Maine law, court actions. They cannot use Maine courts
when they themselves are operating in violation of Maine law.
I also assure individual consumers that as a practical
matter, these companies cannot chase individuals here and there
across the country to bring actions against all the people they
think owe them still more and more money.
None of this minimizes the fear that consumers feel and the
almost self-loathing that consumers have for having put their
families at financial risk.
And, finally, whether or not we can locate the lenders, we
issue cease and desist orders on our public Web site to warn
away consumers, and we also attempt to get collectors to cease
their efforts to collect by convincing them that the consumer
knows their tactics and will not be paying any more.
I welcome any questions you have.
[The prepared statement of Mr. Wright follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Understand that I come to the table having
been involved in this issue with regard to payday loans to our
active duty military and of which we had a witness table that
was full of the Joint Chiefs of Staff, which included the
Chairman and the Vice Chairman, years ago that said this thing
had to stop with regard to their military members because they
were getting fleeced right outside the gates of the military
installation. And as a result, we passed a bill that set a cap
of 36 percent APR on those payday loans made to active duty
servicemembers and their dependents and, of course, granted the
regulatory authority.
Now, if we can do that and if we are dealing, as you all
have testified--and I am going to turn the gavel over to
Senator Collins because I am going to have to temporarily go
and testify in front of another committee--if we can do that
with active duty military and if, in fact, you all are the
regulators of Federal institutions that have now gotten into
this business, why can you not do the same, or do you need some
kind of legislative authority? I cannot imagine. I would think
that you have the regulatory authority. I would like to hear
from you, Mr. Silberman and Mr. Pearce.
Mr. Silberman. Thank you, Senator Nelson, for the question
and for focusing our attention on the concerns of
servicemembers, which, as you know, is a very large area of
concern for the Bureau. Holly Petraeus, who runs our Office of
Servicemember Affairs, has been an effective advocate for
servicemembers and has helped sort of bring sensitivity to
servicemembers' issues throughout the entire Bureau.
We--last year, Congress amended the Military Lending Act to
give the Bureau the authority to enforce the Military Lending
Act for the first time and also a seat at the table in
consulting with the Department of Defense around regulations
under the Military Lending Act. And while that is a relatively
new authority, I can assure you that we are actively engaged
with the Defense Department in consultations around the
regulations affecting the Military Lending Act and affecting
servicemembers directly.
The Chairman. All right. We did that. We passed that
several years ago. I want to know, what about now, particularly
with emphasis on these folks that we have just heard about here
and that you are going to hear more of.
Mr. Silberman. So, with respect to the very specific
question you asked, the Dodd-Frank Act does expressly state
that the Consumer Financial Protection Bureau cannot establish
a usury cap. So, if it were Congress' judgment that the kind of
legislation that was enacted for military borrowers should
apply beyond the military sector, beyond protecting
servicemembers, we would require additional Congressional
authority.
We do, however, have a large amount of authority. Our job
is to assure that the laws that are on the books are
implemented effectively and enforced effectively. We have large
authority under that and we will use that authority to the full
extent that we can to try and regulate practices to assure that
these markets are, in the words of the Dodd-Frank Act, fair,
transparent, and competitive.
The Chairman. Mr. Pearce, I am not entirely satisfied with
the confidence of what Mr. Silberman has just said that this is
going to stop this fleecing of folks with 300 percent interest.
You do have jurisdiction and so does the Comptroller of the
Currency over these Federal institutions. So what can you do
about it?
Mr. Pearce. Right. So, first of all, I should probably say
that, currently, to our knowledge, there are not any
institutions that we directly regulate that are offering
deposit advance products with the kind of interest rates that
you are talking about, and Mr. Silberman is correct that the
Military Lending Act is somewhat unique in that it establishes
a Federal usury ceiling of 36 percent interest that we do not
have in other areas. It is normally a State law matter as to
what the interest rate for each State is.
That having been said, that does not mean that we cannot
take some action to address some of the problems with the
product. As I mentioned in my opening statement, we have issued
proposed guidance that takes a look at the deposit advance
product which has those high fees, but also really short
repayment which leads to that cycle, recurring cycle that you
pointed out in your opening remarks. We can identify that there
are some issues there that we can address and encourage
institutions to make sure that they are underwriting the
borrower so that they can repay the loan that they take out
over time rather than in one single up-front lump sum.
So that really--we do have authority to require
institutions to operate in a safe and sound manner and make
loans with prudent underwriting and we are currently working on
that.
The Chairman. Well, other banks outside the FDIC scope are
offering these high interest loans, banks regulated by the OCC
and the Fed. Do we need to go to them to get them to crack
down?
Mr. Pearce. Well, yes. So, I cannot speak for the OCC or
the Federal Reserve. I would note that OCC, when we issued our
proposed guidance, the OCC issued nearly identical guidance on
the same day and the Federal Reserve also communicated that it
had significant concerns with these products. So I would think
it would be fair to say that all the regulators, those here and
those who are not here today, have significant concerns with
the deposit advance product.
The Chairman. Senator Collins.
Senator Collins [presiding]. Thank you, Mr. Chairman, and I
remember your good work on the issue with our military
personnel. I think you and Jim Talent worked hand in hand on
that.
I want to put this issue into a broader context just to
illustrate how pervasive of problem it is. According to the Pew
Charitable Trust, an estimated 12 million Americans take out
payday loans. These borrowers spend about $7.4 billion in
payday loans annually. Payday loans are obtained at more than
20,000 storefronts and hundreds of Web sites. To me, most
startling, the CFPB found that 22 percent of consumers secure
these loans with public assistance or retirement income
sources.
So I think the picture that is painted is of lower-income
individuals who are frantic for some short-term money spending
enormous amounts in order to get these loans. And I would
suspect that there is an educational program that is needed
here to alert them to the downsides of these loans.
I was thinking about--since I am in the midst of
refinancing a mortgage--of how much paperwork you have to go
through and how many disclosures there are. And that is one of
the issues that I am going to raise, is what kind of
disclosures do payday lenders have to provide, and we will go
right down the panel. Mr. Silberman.
Mr. Silberman. Senator Collins, with respect to under
Federal law, which we are responsible for enforcing, a payday
loan, a storefront payday loan or a closed-end payday loan is
subject to disclosures with respect to the APR, so that the
lender would have to disclose what the APR is to the consumer.
The deposit advance product we have been discussing is
structured as an open-end line of credit, and under the law as
it currently stands, there is no comparable requirement for
disclosure of an interest rate or an APR. The fees would be
disclosed. And that is certainly one of the issues we will be
looking at, is whether the disclosures that are currently
required are effective to achieve the goal of assuring that
consumers can understand, appreciate, and make judgments with
respect to the cost and risks of this product.
Senator Collins. Mr. Pearce.
Mr. Pearce. Sure. I would agree with what Mr. Silberman
said, but also, I would add to that that most of the research
on these types of products indicate that people utilize them
not for one time emergencies, but really to meet basic living
expenses----
Senator Collins. Good point.
Mr. Pearce [continuing]. And when the disclosures in the
marketing of these loans will often indicate that these loans
are not appropriate for long-term use. And so there may be
disclosures that they are expensive products, but they really
target that they are for short-term use only.
I think from our proposed guidance, we want to make sure
that institutions that are marketing the products actually have
the products line up with how they are marketing, so that if
they are intended for short-term use, they actually are used
for short-term use and not for this long-term recurring, as so
many borrowers, as Mr. Silberman pointed out in his research,
clearly use them.
Senator Collins. Mr. Wright, you gave very vivid examples
of consumers who had gotten into trouble, then often were
harassed for repayments and who were paying exorbitant amounts
on these loans despite the fact that Maine has a usury law that
limits the interest rate and the fees. And I would note that
usury laws usually are considered at the State, not the
Federal, level. Do you think these consumers had any idea what
they were getting into----
Mr. Wright. No.
Senator Collins. Have you taken a look at any of the online
disclosures that they have----
Mr. Wright. Yes. Beyond the--and I am speaking here today
only about the online or Internet-based payday lenders----
Senator Collins. Right.
Mr. Wright [continuing]. Not the storefront folks, not the
banks. We do not have problems, as you pointed out in your
opening statement, with the banks. The storefront lenders obey
the law. Those folks are licensed with us and those people do
not give us any heartburn, or consumers, I should say.
But these--the Internet-based payday lenders, like any
lenders, are required to comply with Truth in Lending
requirements. What they do not disclose is the true cost in
dollars and cents of the loans that consumers are taking out,
so that you can use any figure you want. You can put--inject
into that any finance charge you want, and that is all done
by--set by the lender at a rate or an amount that he or she
thinks that they can get away with. You can calculate it all
out and you can arrive at enormous, astronomical APRs, 1,800
percent in some cases.
What the consumer is not told--they are told--for instance,
they are told the amount you are financing, say, $500. Here is
the finance charge, say, $90, repayable in two weeks. Well,
$590 does not sound bad, but, of course, the reality is that
somebody who takes out one of these loans is not going to be in
much of a financial position to repay $590 in two weeks when
they had to two weeks earlier take out the loan to begin with.
And so it does not get repaid, and then what happens is,
because it is not repaid on time, these loans get rolled over.
The interest rates fly away.
And they might get--this is a real example that I have just
given you. The annual APR--this is a real case--as calculated
by the lender in the case I am speaking of, is about 469
percent. Well, that sounds pretty awful, but also fairly
abstract. The reality is that the true cost of that $500 loan,
calculated by APR, is $2,300.
Senator Collins. Gee.
Mr. Wright. Over $2,300. And so I would say to you, yes,
that there is room for improvement in disclosure by which the
consumer has a better understanding of what he or she is really
getting into.
Senator Collins. Because, again, to think of a mortgage
situation, you are told how much you will spend over the life
of the loan, assuming the interest rate stays at a certain
percentage, and it is always a wake-up call for me when I see
how much I am going to end up actually spending for that
mortgage.
Mr. Wright. Yes.
Senator Collins. So there is not that kind of disclosure in
dollars and cents?
Mr. Wright. No, that is right, and that is when people call
us. I mean, I do not hear from anybody who has had a wonderful
experience with Internet payday lenders.
Senator Collins. I am sure you do not.
Mr. Wright. What we hear about are the problems that I have
described to you, and we try to deal with them in a very
realistic way, a very reality-based way to help that consumer.
But the common theme is they had no idea how much these loans
were truly going to be costing.
Senator Collins. And one final question before I turn to my
colleagues. Is there anything that individual States can do to
regulate online lenders that are domiciled outside of their
States, or is that a matter of interstate commerce----
Mr. Wright. I think it is largely a matter of interstate
commerce. Our law, by its terms, reaches payday lenders
wherever located. But the reality of these payday lenders is
that, in many, many cases, they do not want the consumer, let
alone the regulator, to know where they are located or who they
are or what their name is. I heard of one the other day called
cashinawink.com. It was a call yesterday morning that I took.
That company may have a different name by next week for all I
know.
And so I think it really requires Federal action in terms
of disclosure that I have just mentioned. There are some other
things I think that Congress can do. Congress certainly has the
authority, plenary authority in the area of interstate
commerce. Nobody can deny that this is interstate commerce.
The powers that we have, such as licensing and so on, while
we would like to think them to be real, are largely ignored by
these companies. So something, I think, more globally needs to
be done at the Federal level.
Senator Collins. Thank you.
Senator Warren.
Senator Warren. Thank you very much, Ranking Member
Collins. Thank you again, and thank the Chairman for holding
this hearing.
I also want to say, your statement about the reputation of
the Maine Consumer Credit Protection Bureau is spot on. They
are known around the country for the great work that they have
done and the great leadership you have shown.
Mr. Wright. Thank you.
Senator Warren. I also want to say that Mr. Pearce and I
had a chance to work together when I was at the Consumer Agency
and he was working for Chairman Bair on multiple consumer
issues, including particularly mortgages, and so I know you
have great experience and want to thank you for being here
today.
And, Mr. Silberman, whom I worked with at the Consumer
Bureau and for whom I have great respect, has great knowledge
of the industry and great judgment, and so I very much
appreciate your being here today and appreciate the work that
all of you are doing on behalf of our consumers.
I thought what I would follow up on is where Ranking Member
Collins started us, and that is on online lending, if I could.
Payday lenders do not have a physical presence in
Massachusetts, as well, but we remain very concerned about the
growth of online payday lending. I understand from the Pew
Charitable Trust that more than three million Americans
received an online payday loan in 2010. The number is expected
to increase significantly. It is now at about 35 percent of
payday loans were online in 2011, and it is expected to be
about 60 percent of all payday loans by 2016. That is a grim
future to think about.
So I am very pleased to have sponsored with Senator Merkley
the Stopping Abuse and Fraud in Electronic Lending Act, with
the acronym of SAFE Lending Act. It is an Act that would help
close loopholes and better protect consumers in online lending
and other forms of electronic lending.
So, Mr. Wright, I wanted to ask you, if I could, to take, I
think, what is the next question, and that is what things would
be helpful at the Federal level in terms of making sure that
consumers are better protected.
Mr. Wright. Well, I appreciate that question. I have seen
and familiarized myself in a general sense with the SAFE Act
proposal that is being sponsored. We have a SAFE Act in Maine.
Of course, the Federal Act from a few years ago mandated States
to adopt SAFE Acts----
Senator Warren. That is right.
Mr. Wright [continuing]. In the area of mortgage lending,
and we did that promptly. The proposal now, as I understand it,
would be essentially to expand that same kind of licensing
requirement and so on to the area of payday lending.
In addition, as I read the proposals, and I may have not
gathered them all, there is one point that I think that needs
to be stressed here and that is meaningful--for instance,
meaningful disclosure is one thing, and that may go to
consumers not being bamboozled. But some are going to be, and
so how do we get a handle on that?
And I think the answer is, keeping in mind that these
transactions these days now are not literally paychecks, post-
dated paychecks, or checks, but are all done by ACH debiting, I
would propose to you consideration of requiring banks to be
sure before debits are made to consumer accounts that those
debits are compliant with State laws.
Senator Warren. So, superb point, Mr. Wright, and, in fact,
can I just expand the point a little bit in asking about this
with remotely created checks, the notion that payday lenders
are getting access, direct access to people's checking
accounts----
Mr. Wright. That is right.
Senator Warren [continuing]. Whether or not better
protection to give consumers control over their own checking
accounts and the ability to stop the access and the withdrawals
from their accounts when they see a problem. Would that be a
useful tool?
Mr. Wright. It is. I think some of that actually has
already been done under the Electronic Fund Transfer Act at the
Federal level, allowing consumers to stop payments and so on,
but it obviously can be beefed up because, to the extent that
it is already the law, perhaps that law has not been working as
effectively as it might be.
Senator Warren. Right. And then I think you mentioned
earlier, and I just want to see if we can kind of go through a
list here, the idea of making sure there is a level playing
field, and that is that everyone must be compliant with local
State laws on usury. So if someone is lending online in Maine,
they must follow Maine law. If they are doing it online in
Massachusetts, they must follow Massachusetts law. Would that
be helpful?
Mr. Wright. Yes. I think that is the real point at which
these abuses can be pinched.
Senator Warren. Good. Good. And then if I can ask you about
one more, are you familiar at all with lead generators?
Mr. Wright. Well, generally, yes. Somebody will go online
and--and I always ask people, how did you find these folks, and
they are up at 2:00 a.m. clicking away on their computers and
hit a button. It does not necessarily go directly to a lender,
but it goes to a lead generator and then the inquiry made by
the consumer gets kind of farmed out, shipped out to one lender
or another.
And so while we do not deal directly with the lead
generators, what we hear about--and, frankly, the consumers do
not even know how the lead generation process is working. What
we are dealing with and the complaints we take are about the
payday lenders, you know, flybynight.com, cashforyou----
Senator Warren. Right.
Mr. Wright [continuing]. Or whatever. That is what we hear
about.
Senator Warren. So, I take it, more restriction on the lead
generators, too----
Mr. Wright. Oh, sure.
Senator Warren [continuing]. Could be very helpful.
Mr. Wright. Oh, absolutely.
Senator Warren. Good.
Mr. Wright. It goes hand in hand.
Senator Warren. Good. Thank you very much, Mr. Wright.
Mr. Silberman--may I have one more minute?
Senator Collins. Absolutely.
Senator Warren. Thank you.
Mr. Silberman, could you comment on Mr. Wright's comments,
since--not directly on the bill, I know that is not what you
are here to do, but on Mr. Wright's comments about what might
be helpful at the Federal level to deal with payday lending?
Mr. Silberman. So, Senator Warren, I appreciate your
understanding that the Bureau does not comment on particular
pieces of legislation, but the principle of a level playing
field is a sort of core bedrock principle on which the agency
was founded. That applies with respect to depository and non-
depository institutions, but it certainly should apply equally
with respect to lenders who take different forms, online
versus--a marketplace cannot work--a competitive, fair
marketplace cannot work if not everybody is governed by the
same set of rules. So having consistent rules that all players
have to abide by seems to me to just be a sort of first
principle of consumer protection.
Senator Warren. Thank you, Mr. Silberman. Very helpful.
And, Mr. Pearce, would you like to add anything to that?
Mr. Pearce. Sure, if I could. I think Mr. Wright makes an
important point about banks being really the gatekeepers of the
processing networks, and the FDIC has been active in this area,
to remind banks about their responsibilities to do due
diligence in monitoring of transactions that go through the
payment system. Just last year, we issued guidance that really
encouraged institutions to be careful and attentive to higher-
risk types of transactions, whether they are online payday
lending or they could be online gambling or different other
kinds of activities. They do have a role to monitor that and
make sure that they are not illegal.
Senator Warren. Good. Thank you very much, and thank you
very much for your indulgence. I appreciate it.
Senator Collins. Thank you, Senator.
Senator Donnelly.
Senator Donnelly. Thank you, Madam Chair.
This is in regards to what was mentioned before about lead
generators, that oftentimes online, the company advertising the
loan--some are the lenders, but others are just selling the
information to the highest bidder. So when you see that, my
question would be, and this is to any of the three of you, what
are the kind of things that you see out there that we can do to
track the ones who are the bad actors who are not providing
suitable financial products with this but are trying to prey on
people in the online process?
Mr. Silberman. Senator Donnelly, I think you point to a
very large concern that we have about the online payday space.
It was not the subject of our study, but is something we said
we very much want to study.
A concern we have is not simply that the lead generator is
selling the lead to the highest bidder, but that they are
either selling it to or at least distributing it to multiple
would be bidders. And so a consumer provides financial
information and potentially their Social Security number, a
checking account number, and it is not--that that information
then gets pinged across multiple number of unknown lenders. The
consumer has no idea who that information is going to, and the
risks of privacy invasions, even identity theft, these are all
serious risks that we need to be addressing in as comprehensive
a way as we can.
Mr. Pearce. I do not have much to add. As the regulator of
State chartered banks, they are not generally engaged in lead
generation. It is really the question for banks is when they
are processing these transactions, to make sure they are doing
the due diligence with the processors and institutions the
processors work with, on one hand, and also for the consumer's
bank account, if a consumer goes into a bank and tries to stop
payment, you know, make sure that the laws are followed in
honoring a stop payment request when those transactions are
unauthorized or the consumer does not want to make further
payments.
Senator Donnelly. Mr. Pearce, let me ask you, on the
deposit advance payments, have any of the banks indicated that,
at a 36 percent interest rate, that they would not be
profitable, those products?
Mr. Pearce. So, we have received comments as part of our
proposed guidance on deposit advance from a few of the banks
that do offer deposit advance and they do not specifically, to
my recollection, speak to whether they would be profitable at
36 percent interest.
Senator Donnelly. The reason I ask that is, you know, is
there a point where, when you look at, okay, maybe this will
not get paid back, but you have deposit advance as a
protection, as well. How is 36 percent not a significantly
profitable enough operation on those kind of loans?
Mr. Pearce. That is a good question. I do think that the
cost structure----
Senator Donnelly. Just picking that number, as opposed to
33 or 39, I am not saying, but it is a pretty significant
interest rate, and so how is that not enough of a compelling
number for these companies to make these loans?
Mr. Pearce. So, we did research just last year on bank
efforts to serve the unbanked and underbanked, and one of the
things from our findings, we asked banks, do you make loans of
less than $2,500 that are repayable in 90 days or more, that
have streamlined underwriting, that are 36 percent, you know,
so we have asked them these questions. Sixty-five percent of
the banks indicated that they offer those kinds of products.
Our small-dollar loan pilot, which I mentioned earlier in my
oral statement, you know, the institutions were able to make
those loans and identified, three-quarters of them, that they
were beneficial in establishing long-term relationships with
their customers. So we think it can be done at 36 percent
interest.
Senator Donnelly. Okay. Well, then, one other question, and
that would be this. I was privileged to talk to Ms. Smith
earlier today, who will be on the second panel, and in talking
to her, one of the things she mentioned is that on these
deposit advance loans, they would not accept partial paydown
each month, that if it is a $500 loan, they are not willing to
take the interest plus $100 so that next month it is $400, and
then you pay another $100 and so that the next month it is $300
that you are paying on. You either pay the $500 or the whole
thing rolls over. And this is with some well-known banks. I am
wondering about your view at the FDIC of the appropriateness of
not being able to make partial paydowns of the principal.
Mr. Pearce. So, you point out one of the things that--one
of the features of deposit advance that is very common and
closely related to a payday loan, that it is sort of a lump
sum, have to repay it in a very short time period, which then
leads you to not have enough money to make the next month's
expense, and then you roll it over and over and over. That is
one of the concerns with the products that we have that led us
to issue our proposed guidance on deposit advance products.
Senator Donnelly. All right. Thank you very much. Thank
you, Madam Chair--or Mr. Chair now.
The Chairman [presiding]. Senator Wyden.
Senator Wyden. Thank you very much, Mr. Chairman. I want to
commend you, Mr. Chairman, and Senator Collins. I think this is
a very important topic.
Mr. Silberman, a question for you about installment loans,
and particularly, I want to take a look at what you all can do
to help seniors, clearly a vulnerable population, from
installment lenders, because in many respects, they are quite
similar to the payday lenders. In both cases, you have got both
types of loans, in effect, offered by the same lender.
And I particularly was struck by an investigation by the
publication ProPublica into installment loans. I mean, this was
a jaw-dropping drill showing how consumers, particularly
seniors and others, are being ripped off by some of these
unregulated installment loan companies that, in effect, are
targeting seniors and those in the military. And you have got
companies--they cite one like World Acceptance. It sets up shop
outside of military bases, in low-income areas to provide loans
that have interest rates attached to them that, in effect, are
over 150 percent.
And what ProPublica is saying is they are basically using a
business model to get around interest rate caps, interest rate
caps that are established in the law. We have one, for example,
in Oregon, and they do this by wrapping in insurance products
to the loans. And the model is to structure the loan payments
so that the insurance premiums and the interest is paid up
front and then they go out and chase the borrowers hither and
yon and try to persuade them to refinance in order to trap them
into this cycle, this cycle of just paying premiums and
interest and never paying down principal. Evidently, they go
out and harass them in their homes. They go out and harass them
in the workplace.
What are your thoughts about what the Consumer Financial
Protection Bureau can do in this area to deal with these kinds
of practices that you see utilized by World Acceptance and
similar companies?
Mr. Silberman. Well, Senator, to begin with, the Federal
consumer protection laws which we are charged with enforcing
apply--are product agnostic, if you will. They apply to all
forms of products, and one of our jobs is to regulate in a
consistent manner. So we are attempting to take a holistic
approach to the small-dollar credit market, which is why our
first report was on both payday loans and deposit advances,
followed shortly thereafter with a report on overdraft, so that
we would intend to look holistically at all products and make
sure that we are not simply squeezing air in the balloon from
one place to another. That would not serve anybody's interest.
With respect to the practice that was reported of selling,
I guess we would call, add-on products in conjunction with
installment loans, that, as you know, has been an area in which
the Bureau has been particularly active. Our first enforcement
action was around add-on products in the credit card market and
there have been several of those. We recently brought an action
which involved products being sold to servicemembers, and one
piece of that was add-on products that were not clearly
transparently disclosed.
So we have ample authority to assure that in that sort of
situation, the products--that consumers understand what is
being sold, they are not finding themselves that they have
bought a product without even realizing that they actually had
bought it, without ever saying yes to it, without understanding
the terms of the product. That is a very important part of what
we are all about.
Senator Wyden. So what can be done about World Acceptance?
I mean, this is evidently an important investigation by a
credible consumer rights group, something that has been an
ongoing problem. Is there anything else that you need to do,
that the Congress needs to do, that regulators need to do?
Mr. Silberman. Well, Senator, we have the authority to
supervise both depository institutions and non-depository
institutions. For non-depository institutions, Congress
actually gave us plenary authority over payday lenders. But for
other types of lenders, we first have to--our authority is
limited to larger participants, which we have to define by
rule. So that would be something we would have to do before we
could engage in our supervisory activity.
Senator Wyden. So you would need to pass a rule to go after
people like World Acceptance?
Mr. Silberman. Not quite, Senator. I said that we have--in
order for us to be able to do a supervisory exam, that would be
true. But our enforcement authority is not so limited. We have
the authority to investigate and enforce the consumer
protection laws against any non-depository institution.
Obviously, I am not at liberty to talk about any particular
investigations that may or may not be going on.
Senator Wyden. Well, why do we not do this. I would like
you to get back to me in writing with what the tools you have
are with respect to World Acceptance, A, and what your take is
of the urgency of this matter, because this looks to me like--
and I thought you were spot on with respect to how you want to
look at this holistically--that this looks like another way to
get around efforts by some who are pro-consumer, like in our
State of Oregon you get around limits on payday lenders and so
you try to tuck this kind of approach in and you basically can
accomplish the same thing. So get back to me in writing on both
of those points, okay?
Mr. Silberman. I would be delighted to do so, Senator.
Senator Wyden. How long will that take? Can you have that
done within, say, two weeks?
Mr. Silberman. I would--I would think so, but let me just--
yes.
Senator Wyden. Very good. Thank you.
[Laughter.]
Thank you, Mr. Chair.
The Chairman. Your minders behind you suggested that two
weeks was sufficient time.
Mr. Silberman. I am mindful, Senator, that Director Cordray
is out of the country and I am sure he would want to be able to
review anything we sent on a topic as important as this, so I
just wanted to double-check on that one.
The Chairman. I want to invite each of the three of you to
remain and hear the second panel, because I think it is
important testimony that you hear. And so may I invite up the
second panel, please. And as you hear, Mr. Silberman and Mr.
Pearce, as you hear this testimony, just think about what we
are trying to accomplish in this committee in stopping some of
these egregious cases.
All right. First, we are going to hear from Annette Smith.
She will share her personal experience as a deposit advance
customer and the difficulties she has had in getting out of
this cycle of debt.
And then Rebecca Borne, who serves as the Senior Policy
Counsel of the Center for Responsible Lending.
And then Dennis Shaul, CEO of the Community Financial
Services Association of America.
And then Richard Hunt, population and CEO of the Consumer
Bankers Association.
And I might tell everyone, in 25 minutes, the Senate will
take and observe a moment of silence in the memory of Officer
Jacob J. Chestnut and Detective John M. Gibson of the U.S.
Capitol Police, who were killed 15 years ago in the line of
duty defending the Capitol, defending the people who work here
and the visitors against an armed intruder, and they paid for
that defense and protection with their lives. So we will stop
for a moment at 3:40.
So, Ms. Smith.
STATEMENT OF ANNETTE SMITH, DEPOSIT ADVANCE CONSUMER AND SOCIAL
SECURITY BENEFICIARY
Ms. Smith. Good afternoon, Mr. Chairman and Mrs. Collins.
Thank you for having me here.
My name is Annette Smith. I am a 69-year-old widow. I live
in a small town outside of Sacramento, California, and I am a
longtime customer of Wells Fargo. I was once a business owner
and a land owner, but an identity theft scam left me without
assets or credit. The thieves were prosecuted, but I was not
compensated and was never able to rebuild from that experience.
Many years later, I am still poor. I have received Social
Security as my only source of income for the last seven years.
My Social Security check is for about $1,200 a month. That is
the only income I have to pay all of my expenses.
Five-and-a-half years ago, I asked my local branch for a
small personal loan, just enough to fix my car so it would pass
California's smog test requirement. They told me they did not
offer those but that I could get a direct deposit advance
online. I went home and with just a few clicks I had $500 in my
account.
A couple of weeks later when my Social Security check was
electronically deposited to my account, the bank withdrew the
$500 plus a $50 fee. Back then, my monthly Social Security
check was far less than the $1,200, and the $550 that Wells
Fargo took was half of my monthly income. Without it, I could
not pay my rent and other bills and expenses. So a few days
later, I took out another $500. But the same thing happened the
next month. The bank withdrew the entire amount plus a fee
again. I could not pay the advance in full and all of my bills
and expenses. I had to take another loan, again and again, to
my surprise, for five years.
A few times, I tried not to take another advance, but to do
that, I had to let other bills go. The next month, those bills
were behind and harder to pay. I never made it two full months
without having to borrow after paying the last advance. A few
other times, I tried taking out less than $500, maybe only $200
or $300, but I still could not stretch my Social Security check
to pay the whole advance and make ends meet. Any time that I
tried to not borrow again or to borrow less, the bills and
expenses I could not pay would catch up a month or two later
and I was back where I started.
It was horrible, but I thought there was no way out. I did
not have a credit card. I am sorry. I do not want to cry. I did
not have a credit card. Wells Fargo had already told me that
they would not give me a personal loan. I could not borrow from
my kids, who were themselves struggling. And I never considered
going to one of those payday loan stores because I knew they
had a reputation for charging really high interest rates and
those are things I could not afford. In fact, I thought that
since banks were required to follow certain laws, they could
not do what those payday loan people were doing.
I thought that the problem was me, that I just could not
figure a way out, even though I tried everything I could think
of. I recently learned that Wells Fargo has installment plans.
If I had known that then, I would have been really happy. In
fact, I tried to set up an installment plan recently, but they
told me it was impossible.
Finally, I talked to someone at the California Reinvestment
Coalition who was looking for people who borrowed a Wells Fargo
direct deposit advance. I described my situation and answered
their questions. They looked into my bank statements and helped
me figure out how much this was costing me. In total, I got 63
advances from Wells Fargo in five years and the fees I paid
totaled almost $3,000. I was shocked, but mostly deeply
embarrassed.
But then I realized that I could not be the only one that
this had happened to in this situation. That is when I agreed
to tell my story, so that other seniors would not think like I
did, that borrowing a direct deposit advance was safe and you
could end up paying your Social Security on a loan that is so
hard to get out of.
With CRC's support, I even went to the Wells Fargo
shareholder meeting to tell CEO John Stumpf about my situation.
He told me that someone from the bank would work with me. A few
days later, I went with CRC to my local branch to ask for an
installment plan. I wanted to pay the money I owed in small
amounts that I could afford. CRC had told the bank we were
coming, so when we got there, the branch manager and the
district manager were there waiting for me. They also had
someone from the corporate office on the phone.
We asked for an installment plan so that I could pay the
advance over time like you would other loans. The bank people
said their system was automated, that there was no way to stop
the next withdrawal or fix it so that I could pay in small
installments that I could afford. Instead, they offered to
forgive my last advance as long as I never borrowed an advance
again from them. I agreed.
A few days later, I saw that after they withdrew the
payment, they credited me the same amount with a label marked
``Customer Satisfaction Credit.'' It was finally over. It feels
good not to owe Wells Fargo anymore, but I know that there are
others like me who have not had their loans forgiven and are
still struggling with the direct deposit advance.
I am asking you today to please do something, whatever you
can, to stop banks from doing this to other seniors across the
country. Thank you.
[The prepared statement of Ms. Smith follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. That is one of the reasons for this
committee, Ms. Smith, is to learn from senior citizens such as
yourself about your real world experience and to try to change
the system so that this does not happen to other people.
Ms. Smith. Thank you.
The Chairman. Now, you paid $50 a pop in fees 63 times.
Ms. Smith. The first few years. Lately, it has been $37.50.
A couple of years ago, it got lowered----
The Chairman. The total amount----
Ms. Smith [continuing]. But a total of $3,000.
The Chairman. Okay. Ms. Borne, tell me what you think about
this.
STATEMENT OF REBECCA BORNE, SENIOR POLICY COUNSEL, CENTER FOR
RESPONSIBLE LENDING
Ms. Borne. Good afternoon, Chairman Nelson, Ranking Member
Collins, and members of the committee. Thank you for the
opportunity to testify today.
I would like to begin by sharing a couple of comments from
former payday lenders about borrowers receiving Social Security
or other Federal benefits. One former manager of payday loan
stores described the industry's affection for these borrowers,
saying, ``These people always get paid, rain or shine. They
will always have money every 30 days.''
A former employee of Advance America, the nation's largest
payday lender, said, ``Borrowers receiving Social Security or
disability payments would come in for a small loan and write a
check to the company dated the third of the month, when their
government checks would arrive. All the Advance America
employees were required to come in early on that day so we
could quickly cash their checks and wipe out their checking
accounts.''
Older Americans are particularly attractive to payday
lenders because of their steady stream of benefit income. It is
not surprising that a study commissioned by the Wall Street
Journal found that payday loan stores clustered around
subsidized, disability, and senior housing.
Payday loans are aggressively marketed as a short-term
loan, a quick solution, but in reality, they quickly engulf
most borrowers in an expensive cycle of long-term debt. Though
their loan is typically technically repaid on the due date, the
repayment of the loan plus the fee does not leave borrowers
enough money to pay for necessities, like rent or food, for the
rest of the pay period or month, so borrowers are forced to
renew their loan or reborrow before the end of the next pay
period, paying a new fee each time with no reduction in
principal.
CRL's research has found that payday borrowers remained in
debt an average of 212 days of the year, and that 76 percent of
all payday loans are made within two weeks of a previous payday
loan being repaid. Eighty-two percent of all payday loans made
within one month of the previous loan being repaid. And these
findings include data from States that have implemented so-
called best practices or safeguards that purport to stop the
debt trap but clearly do not. Ultimately, about half of payday
borrowers eventually default, many after spending months or
years in debt and paying fees that far exceed the principal
borrowed.
Research has shown that payday loans cause serious
financial harm to borrowers, delayed medical care, paying other
bills late, increased likelihood of bankruptcy, and these harms
are particularly acute for older Americans, many of whom are
already struggling with a decline in the value of their home
and retirement assets and who often have less income and a
shorter time horizon to recover from financial shortfalls.
In a disturbing trend, a few banks have now joined the
ranks of the payday lenders. We know of six: Regions Bank,
Fifth Third Bank, Wells Fargo Bank, Bank of Oklahoma, U.S.
Bank, and Guarantee Bank. These banks make payday loans even in
States where laws clearly prohibit payday lending by non-banks.
Banks call these deposit advances, but they are designed to
function just like any other payday loan. Bank payday borrowers
end up with 13 loans a year and spend large portions of the
year in debt, even as the banks claim the loans are intended
for occasional emergencies.
Our research found a striking number, over one-quarter, of
bank payday borrowers were Social Security recipients. On
average, banks repaid themselves 33 percent of the borrower's
next Social Security check to repay the loan.
Though only a few banks make payday loans today, the threat
that payday lending by banks becomes the norm is very real. We
are at a tipping point. As already noted today, the OCC and
FDIC, recognizing that this product poses both safety and
soundness and consumer protection concerns, recently proposed
guidance that would address the central problems with bank
payday lending. We urge these agencies to issue finalized
guidance that preserves their proposals' key provisions.
The Federal Reserve Board, the prudential regulator for
Regions Bank and Fifth Third Bank, did not issue the same
proposed guidance. We continue to urge the Federal Reserve to
do so. The Board did, however, issue a supervisory statement,
the content of which should compel Regions and Fifth Third to
make meaningful changes to the product that eliminate the debt
trap it has been shown to cause. To our knowledge, the banks
have not indicated plans to do so.
The CFPB's recent extensive study of storefront and bank
payday loan data both confirmed and expanded on prior research
finding that payday lending puts borrowers in a debt trap. The
CFPB has indicated it will use its authority to address this
problem and we urge it to do so.
Twenty-two States, home to over 40 percent of all
Americans, have decided they do not want unfettered payday
lending for their residents. As mentioned earlier, Congress,
with the leadership of Chairman Nelson and at the urging of the
Department of Defense, decided seven years ago that payday
lenders should be prohibited from making payday loans to
members of the military.
Payday loans affirmatively harm rather than help older
Americans. They affirmatively harm rather than help Americans
of all ages.
We thank you for holding this hearing today and we ask that
you support ending the payday lending debt trap by banks and
non-banks alike. Thank you.
[The prepared statement of Ms. Borne follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Ms. Borne.
Okay, Mr. Shaul. We want your perspective as the Community
Financial Services Association, and you have longstanding
experience in this position, having been a member of the staff
of the Banking Committee under Chairman Barney Frank for years.
So give us your perspective and what can we do about this, and
in States that prohibit, as Ms. Borne said, payday lending,
what is, in essence, the same thing that she has testified,
tell us if that is what is occurring, and if so, what can be
done about it.
STATEMENT OF DENNIS SHAUL, CHIEF EXECUTIVE OFFICER, COMMUNITY
FINANCIAL SERVICES ASSOCIATION OF AMERICA
Mr. Shaul. Thank you, Mr. Chairman. Thank you, Ranking
Member Collins and members of the committee. I am Dennis Shaul.
I am the Chief Executive Officer of the Community Financial
Services Association of America.
CFSA's member companies represent more than half of all
traditional payday loan storefronts across the country. We are
regulated at the Federal level and by the individual States
where we operate. Also, CFSA members adhere to a strict code of
best practices that cover everything from advertising to
collection practices. We believe in providing consumers with a
product that is fully disclosed and easy to understand if the
structure of a payday loan is simple and clear to the borrower.
Members have left our organization and others have not joined
CFSA because they are unwilling to comply with these best
practices.
There are unregulated offshore entities and other illegal
or unscrupulous lenders who prey on the most vulnerable, and
here I would say it is important to note that not everyone who
is online is either unregulated or preying on the vulnerable.
We share your commitment to protecting consumers from those
that engage in such practices.
Payday loans serve those who need to borrow relatively
small sums to meet critical short-term expenses. Eliminating
access to storefront payday does not eliminate their needs.
Borrowers turn to unregulated lenders. The protections States
want to extend to their citizens are not in force for those
loans.
Today's hearing looks specifically at the use of payday
loans by senior citizens, which is an extremely small set of
payday loan borrowers, about eight percent from storefronts, a
figure that is verified by Clarity, a quasi-credit examining
organization that collects data across the country, and also by
Veritech, which does the same thing. Payday loans' usage among
senior citizens is even lower than their use of other forms of
credit.
We recognize that payday loans are just one of many tools
in a consumer's financial toolbox. Our member stores are
friendly and convenient and typically provide a wide range of
financial services. Our member companies work extremely hard to
ensure that their consumers take payday loans that meet but do
not exceed their individual needs.
It hurts both the lender and the customer when a loan is
not repaid. If a customer is unable to pay back a loan, we will
work with them to find the best solution. One option is an
extended payment plan, which is a part of our best practices.
The plan offers customers more time to repay a loan without
additional fees or interest.
We know from experience that educated borrowers are our
members' best customers. Access to clear, consistent, unbiased
information benefits both the lender and the borrower.
Here, Senator, I would like to say that it is not usual for
a person of my background to take the position I have had.
Neither did I see it in my future nor would our members have
readily chosen someone with my political disposition. What is
clear is that our members recognize what has been, I think,
well pronounced during this hearing. Payday loans as we have
known them are not likely to survive another five years. Each
member that I talk to realizes that not only is reform
necessary, but a greater product variety.
To speak specifically of things that need to be done, first
of all, we need to do a different and better form of
underwriting so that we catch people much earlier who might
wind up in a cycle of debt.
Secondly, we need to offer installment loans that are truly
installment loans and not a way of making further profit, but
are geared to the customer who cannot make a payment within two
weeks.
Third, we need to register all companies that are making
loans, whether they are Internet or storefront lenders, so that
we have greater access to supervision of them.
And, fourth, I think we need--and I am here campaigning
with the CFPB--I think we need to make our code of business
practices, of best business practices, a part of the rulemaking
process and make sure that it is enforced across the board.
Many of the examples, anecdotal examples that we hear from
people who have been abused stem from those who do not accept
or practice the kind of best business practices that we demand.
Finally, I would say that one thing that is very important,
and we say this over and over again to the CFPB, is that we
readily accept supervision both at the Federal and State level.
But the States provide us with a dynamic, multi-faceted
approach toward lending in this sector. I hope that there is
not a form of preemption that occurs, but I do think there is a
need for a Federal presence such as the Bureau has. We gain
much from the experience that each State has. Your State of
Florida is very different from the State of Illinois, which is
different from Michigan, which is different from California.
There are good and bad aspects in all those States and we have
yet to come up with a perfect solution to what will work in
terms of regulation or what would be the perfect product.
But what we surely know is that the product availability
that we now have is not enough to meet the needs of the
customers in this sector. Installment lending will help. We
also know that we need to be vigilant in not forcing people
into a less good situation, and we see the numbers crawling up
dramatically on those who go offshore to unregulated entities.
I am grateful for the opportunity to be here and
particularly eager to answer any questions you might have.
[The prepared statement of Mr. Shaul follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. This committee is not assaulting payday
loans. I stated very clearly in the opening comments that there
is a need for those kind of advance payments. It is the cases
that this committee is interested in of the egregious examples
of abuse and where someone is paying 300 percent interest when
a State's law says that the max is 36 percent interest. Then we
have an interest in seeing that those kind of practices are
stopped.
You also bring up very cogently and timely the fact that we
are going to have another creature out there to try to protect
seniors from, and that is the online offshore kind of lending.
We have been involved in some of that offshore scam stuff that
is going on among seniors. So we want to work with you, Mr.
Shaul.
Mr. Hunt, tell us, as CEO of the Consumer Bankers
Association, what can we do.
I am going to stop right here. It is 3:40. All across
Capitol Hill, there is now a moment of silence for Officer
Jacob Chestnut and Detective John Gibson, killed 15 years ago
in the line of duty.
[Moment of silence observed.]
And thank you all very much.
Okay. Mr. Hunt, you are the CEO of the Consumer Bankers
Association. Tell us what you think is the problem and how can
we go about correcting it with your members.
STATEMENT OF RICHARD HUNT, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CONSUMER BANKERS ASSOCIATION
Mr. Hunt. Sure. Thank you very much, and good afternoon to
you, Mr. Chairman and Ranking Member Collins and members of the
committee.
I am President of the Consumer Bankers Association. We
represent the retail section of a bank. We appreciate the
opportunity to be here today.
Unfortunately, 75 percent of today's consumers in this
economy live paycheck to paycheck, meaning many times they need
help to pay their mortgage or rent, hospital bills, or an
automobile repair. When an existing customer walks into one of
our banks, we can do one of two things. We can help them or we
can turn our back on them.
If we try to assist, and remember, we only have six banks
in this country that offer a deposit advance product--we
represent four of those six--if we try to assist them and they
qualify, they have the option to use something called a deposit
advance product. It is important to highlight for this
committee, this product is a short-term line of credit. It is
not a loan. It has been widely used by consumers to meet their
short-term liquidity needs. It is a very popular product.
A deposit advance is absolutely not a payday loan. Banks do
not participate in any payday lending, as the costs and terms
are very different.
Deposit advance products are consumer driven and driven by
demand. One can eliminate the product, but unfortunately,
cannot eliminate the demand. We try and do everything we can to
keep customers in a heavily regulated entity, such as we are.
In many instances, deposit advance product is one-half the cost
of a traditional payday loan and much cheaper than that versus
other industries such as pawn shops and unregulated online
lenders.
There are very stringent requirements that must be met for
one to receive a deposit advance product. A customer must be in
good standing with a bank. That means they have an established
relationship with their bank from two to six months, no
extensive negative actions against their account, and have a
history of recurring direct deposit.
If the customer qualifies for this product, they must then
review the bank's transparent and easy to understand
disclosure, which includes fee structure details, an agreement
to pay off the balance of this line of credit with the next
direct deposit, and importantly, each bank clearly highlights
and discloses to the consumer this is a short-term product.
Then, and only then, will a customer receive access to a
deposit advance product.
I would like to point out, our four banks do not spend one
penny marketing this product. Of the four banks, three percent
participation of all checking account holders. Fifteen percent
of those three percent are seniors.
So a quick review. There are 7,000 banks in this country.
Only six banks present this product. Only three percent of the
account holders participate in a deposit advance product, and
15 percent are seniors. So it is 15 percent of the three
percent are seniors.
Customers must review the terms and disclosure each time
they access this line of credit.
These four banks have worked with regulators, customers,
and consumer groups to improve this product to make it as
transparent and less costly as possible. Over the years, we
have changed our product to include cooling off periods,
installment repayment options, lower credit amounts, and
lowered the cost. We also do not charge for any late fee a
customer may have.
The other option we have when a customer walks into the
bank wanting assistance is to turn our back on that customer
and tell them the most heavily regulated industry in the
country cannot help you in your time of need, in a time where
the number of underbanked and unbanked customers are rapidly
increasing. We do not think this is in the best interest of the
consumer.
If we do not choose to help them, they have several
choices. They can go to the traditional online payday lending,
which is expensive, the pawn shop, which is even more
expensive, or, as the Wall Street Journal pointed out recently,
they will turn to the Tony Sopranos, rest in peace, of the
world. That is the most expensive alternative.
One thing you may have seen over the last couple of weeks
is something we called regulatory olympics in this country.
There are now four regulators, numerous States, and now this
body overseeing this product. We understand. We appreciate the
jurisdiction all may have. However, this is an inefficient and
ineffective way to regulate. In this town, we call it
regulatory olympics. We think it fits the situation well.
We urge another cooling off period. Let us let the CFPB
conduct its comprehensive analysis before any agency takes
further action.
I would like to close with a quote from a prominent member
of banking, the newly confirmed Director of the CFPB, Richard
Cordray, who said, and I quote, ``I want to be clear about one
thing. We recognize there is a need and demand in this country
for emergency credit.'' January 19, 2012. We align ourselves
with that comment.
We want to improve this product. Any suggestions you may
have will be taken seriously. We want to make sure customers
are happy with their banks.
With that, Mr. Chairman, I will yield for any questions you
may have.
[The prepared statement of Mr. Hunt follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Well, some of the suggestions were made by
Mr. Shaul, which I would encourage you to share with your
member banks.
Mr. Hunt. Sure.
The Chairman. Instead of the three alternatives that you
listed, installment loans for up to two weeks, extended pay
plan so they would not get into the cycle on a limited income,
such as Social Security that Ms. Smith made. So we will discuss
that later.
Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Shaul, today in your testimony, you gave a number of
constructive suggestions for tightening the regulation of
payday lenders. That seems very much at odds with the tone that
your organization took when you sent a comment letter to the
CFPB on its white paper on payday loans, and I am going to read
specifically what your organization said.
You wrote, ``The tone, conclusions, and specific language
within the report seem aligned with the type of rhetoric that
more often comes from advocacy groups that are not always
driven by facts but rather are driven by agendas and
unsupported anecdotal information.''
I am trying to reconcile your constructive approach today
and at least conceding the need for codifying best practices,
taking steps to clean up the industry, with your indictment of
the paper done by the CFPB on payday loans.
Mr. Shaul. Perhaps I can help you, Senator. The indictment
of the white paper is not an indictment of the Bureau or those
who work within it. I should say that we were surprised by its
timing because the data collection was not complete, a fact
that they themselves acknowledge.
We were disturbed by the methodology because I think, as
our critique would show, it gives an unrealistic and
unwarranted sample to those who are frequent users of the
product as opposed to taking the body of those who use the
product across the whole field, the whole field of users.
And then, perhaps most importantly, there is a speculation
on consumer welfare that is a part of the end of the paper
which draws no factual research to support it.
Now, it is important to say a number of things. First, we
recognize that the Bureau is here to stay and we wish to
cooperate with it. As a matter of fact, one of the great
disappointments here was, as you can imagine, in a trade
association, it is not always easy to convince the members to
give up their data to a regulatory agency. We took that step,
and it was not an easy one to convince our members to do.
Therefore, when we found that though the data was not complete,
the conclusions had been reached, it was a moment of some
seriousness within the trade association.
Secondly, we do feel, and we have seen it here today, and
this is such a disappointment to me, I thought that when I took
this position, the one thing that would be extremely helpful
was to do or have at my disposal research that would be
extremely useful in getting at how many on a spectrum of 100
customers are really led into a poverty situation--into a
greater poverty situation by their use of the loan, how many
are well served, how many are left neutral. I do not find that
research.
Moreover, as you have seen today, there is a dispute about
the research. In my judgment, the one place in which that
research can be conducted in a way that neutrally will affect
all parties and where there will be a respect for it is within
the Bureau.
Senator Collins. Well, what advocacy groups that are not
driven by facts are you referring to?
Mr. Shaul. I thought that the Pew paper was not--the Pew
research paper was not a well-done paper, and I would be happy
to augment my statement with some detailed criticism.
Senator Collins. Mr. Shaul, I am just curious, were you
involved in drafting the Dodd-Frank bill which created the
Bureau?
Mr. Shaul. Yes, in its later stages, I was, but I was not
involved in the creation of the Bureau itself.
Senator Collins. Did you support the creation of the
Bureau?
Mr. Shaul. Yes.
Senator Collins. Do you support increased disclosure
requirements for lenders such as Mr. Wright and I discussed, so
that they know the actual dollar amount that they are going to
end up paying?
Mr. Shaul. Not only do I support greater disclosure, but
one of the first things I did in January of this year as a part
of a staff effort was to revise our disclosure to say that the
payday loan is denominated or marked as a short-term loan.
Experience shows that many borrowers use it longer than that.
I think if you read our disclosure, it is a very
comprehensive thing as it is now. I would say most----
Senator Collins. Does it say the amount that the consumer
is going to have to pay back, or does it just give the interest
rate----
Mr. Shaul. It gives the APR and it depends----
Senator Collins. Well, the APR is pretty hard for people to
calculate----
Mr. Shaul. Right.
Senator Collins [continuing]. If you do not give them the
amount the way you get with a mortgage disclosure.
Mr. Shaul. I am with you on greater disclosure and I would
go one step further. It is not just greater disclosure, but it
is also a form of education that we need for people in this
sector of the economy so that they really understand what they
are getting into.
So I am completely open to greater disclosure and I think
we have done a great deal on it. And I think your suggestion
about denominated dollars is one that I would be happy to
discuss with my membership, yes.
Senator Collins. Thank you, Mr. Chairman.
The Chairman. Senator Warren.
Senator Warren. Thank you very much, Mr. Chairman.
So, Mr. Hunt, I heard you say most emphatically that
deposit advance is not payday lending. So, I just want to go
over the specific example we have here from Ms. Smith. She says
an installment loan was not available, that she asked for it
and could not get it. Partial payment was not available. Once
she had taken this out, she had to come up with all of the
money, which is, I think, how it usually works with payday.
That she rolled this over, Ms. Smith, did you say 67 times?
Ms. Smith. Sixty-three times.
Senator Warren. Sixty-three times over the space of five
years. By my calculation, just back of the envelope, I think it
is about 200 percent annual interest that she paid. She was
given this when she had--evidently, it was verified that she
would have a Social Security check coming in every month, which
means, in effect, repayment was virtually guaranteed.
Ms. Smith. They took it.
Senator Warren. They took the money out----
Ms. Smith. I did not----
Senator Warren [continuing]. Did not even wait for someone
to show up with a check. And it was all handled electronically,
so there was no need even to have a storefront and a clerk to
process this.
So, I understand ways in which it is more effective than a
payday loan, but what I do not understand is your statement
about how this is not a payday loan, so maybe you could just
explain that better to me.
Mr. Hunt. Sure, Senator Warren. Sure. Thank you very much.
I appreciate the question. As you know, Senator, we cannot get
into the specifics of an individual case for privacy matters. I
do not know the exact relationship between the witness and the
bank in question. We cannot ask those questions.
I would tell you generically and from a 30,000-foot
standpoint, you do have an opportunity for installment loans.
Senator Warren. I am sorry, Mr. Hunt----
Mr. Hunt. You do have an opportunity----
Senator Warren. Let me stop right there. Are you saying
that Ms. Smith misunderstood Wells Fargo when she asked for an
installment loan and was told that she could not get it?
Mr. Hunt. I do not know what transpired between two
individuals. I do not even know when it was. I am just telling
you today----
Senator Warren. Ms. Smith?
Ms. Smith. It is a matter of record that they forgave my
loan about a month ago when I went in and asked for an
installment loan.
Senator Warren. Mr. Hunt?
Ms. Smith. They said they were not equipped to do that.
Mr. Hunt. Senator Warren, I am just going to tell you,
Wells Fargo today offers an installment loan, that if a person
cannot meet their needs on the next direct deposit, they have
an opportunity to have an installment loan. Now, when that
happens----
Senator Warren. Mr. Hunt, I am just saying to you, we have
Ms. Smith here saying that that is not so.
Ms. Borne, did you want to weigh in?
Ms. Borne. I just wanted to point out that the installment
option that Wells Fargo has and that other banks making payday
loans have are notoriously hard to obtain. For example, Wells,
even after having changed its policy, still requires the
borrower to be in debt for three consecutive months before they
can qualify for an installment plan.
Another bank only lets you get an installment plan if you
ask for it by calling the bank before you take out the loan. So
once you actually have the loan, no installment option. This is
consistent with the experience in the storefront arena, where
the extended payment plan that Mr. Shaul mentioned has
notoriously low pick-up rates. In other settings, the industry
has admitted that it is a lot less profitable and they do not
want borrowers doing it.
Senator Warren. Thank you, Ms. Borne.
Mr. Hunt, I am still trying to understand how the deposit
advance is not a payday loan.
Mr. Hunt. Well, I will tell you how exactly that is not a
payday loan. One, you have to have an established relationship
with the bank. We have to have a history with the bank. You
cannot just walk into a bank and receive a deposit advance
product. You have to have a history of a direct deposit, as
well. And you cannot have any negative consequences happen to
your bank. That is our form of underwriting.
Senator Warren. So----
Mr. Hunt. That is completely different.
Senator Warren. So let me----
Mr. Hunt. And the cost----
Senator Warren. Let me make sure I understand this, then.
Mr. Hunt. The costs are completely different.
Senator Warren. Let me understand, make sure I understand
this, Mr. Hunt.
Mr. Hunt. Sure.
Senator Warren. So you only want to do these loans for your
established customer base when, in the case like Ms. Smith,
when you know that you are going to have effectively a 100
percent chance of repayment here, and that is how you
distinguish yourself from being a payday loan?
Mr. Hunt. That is one of the ways we distinguish ourself. I
think it is a positive thing, we have an established
relationship with our customer. I think it is a positive thing
that only certain people qualify to get a deposit advance
product. I think it is a positive thing that we charge half of
what a payday lender charges. I think those are positive
bodies. I think it is also positive, Senator Warren, that we
keep people within the regulated entity and not the under-
regulated. I think we can all agree we are one of the most
heavily regulated industries.
Senator Warren. Mr. Hunt, I see that I am out of time, but
if I might, Mr. Chairman----
The Chairman. You can----
Senator Warren. No, no, I just want to say here that to
describe yourselves as being part of a heavily regulated entity
when it is the case that by her direct testimony we have
someone here who received loans that were rolled over for five
years. She paid an average of 200 percent interest on a loan
that cost the bank very little to administer, since it was
electronic, and was effectively 100 percent guaranteed that the
bank would be repaid.
So I appreciate that the bank is a regulated entity, but I
am afraid I just cannot understand the distinction between how
deposit advance has somehow improved Ms. Smith's life over that
of going to a storefront, where she could have also gotten a
payday loan.
So, thank you. Thank you, Mr. Chairman.
Mr. Hunt. Do I get a chance, Mr. Chairman, to respond?
The Chairman. Of course.
Mr. Hunt. Okay, great. Thank you very much.
As you know, Senator Warren, banks offer cooling off
periods, so if a customer has this product for five to six
months, they are shut off. For one solid month, they cannot
access their line of credit. It is up to the customer, then, to
say, hey, I need this line of credit once again.
The customer also, Ms. Warren, Senator Warren, has an
extensive process for application, something you have always
been in favor of, easy and transparent disclosures. So if you
apply for a deposit advance product, you will see right here it
says that deposit direct advance is a line of credit designed
for short-term borrowing needs. It says the service is
expensive. You have to understand the fees. Advances are
automatically deposited into the checking account. Advances
will automatically be repaid from your checking account. And on
and on and on.
Senator Warren. Mr. Hunt----
Mr. Hunt. And the customer has to voluntarily sign off on
this.
Senator Warren. Mr. Hunt, I am afraid what I was looking
for here is how your product--I just started with your
statement that a deposit advance is not a payday loan----
Mr. Hunt. It is not.
Senator Warren [continuing]. And that is what I am trying
to understand----
Mr. Hunt. It is not a loan.
Senator Warren [continuing]. And you are telling me--you
are telling me that there are extensive paperwork that you had
her sign off on, you had Ms. Smith sign off, and actually, Ms.
Smith is shaking her head no. Ms. Smith?
Ms. Smith. It was all done online, point and click, and----
Senator Warren. So I am back in my original position. If
the concern we have is about a product that is designed to
ensnare people in repeat loans over time so that it is possible
to extract from them 200 percent interest, then it seems to me
that Ms. Smith is describing such a product from Wells Fargo.
Ms. Smith. May I make a statement?
Senator Warren. Of course, Ms. Smith. I am sorry, Mr.
Chairman.
[Laughter.]
Sorry, Mr. Chairman.
Ms. Smith. I do not quite understand where he said that I
was eligible. I walked into the bank and asked for a small
loan. They said they did not have them, but they had a service
called a direct deposit advance. The only thing that made me
eligible was I had a Social Security check in there that they
could just take the money out. I did not have to buy a stamp in
five years to mail it in. I was never late. I was never
defaulted.
Senator Warren. Thank you, Ms. Smith.
Mr. Hunt. And just to finish up, I did make a mistake when
I said sign off. In today's terminology, that also means you
check off a box. Much like you do with iTunes, you can do
services now online, as well. And it is true that many of our
banks do this. But it is the same principle. You still have to
check off on these boxes to do it. And again, this is a
voluntary item that the customer chooses to do, and you do have
to meet certain requirements in order to get this product.
Senator Warren. Yes, Mr. Hunt, I think you are right. It is
the same principle.
The Chairman. There are customers and there are customers,
and some of your customers, probably a good percent of them, do
not know all the different products that are offered by a bank,
and maybe that is one of the responsibilities of a bank, to
present to them all the alternatives, particularly when it
comes to a senior citizen that is on just Social Security and
depends on that check for everything.
Now, for the life of me, I cannot understand why your
member banks would want to take the negative aura that is
created by these kinds of circumstances that Ms. Smith has
testified to, and there have been others that have been
mentioned here today, in order to insist on a technical point
of this or that. The bank ought to be helping the customer and
we are going to follow up on this.
Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman.
And, Ms. Smith, it was a pleasure to have you stop by the
office this morning. Thank you very much.
Did you ever discuss your situation with anyone at Wells in
regards to paying it back in installments?
Ms. Smith. Just recently.
Senator Donnelly. Okay.
Ms. Smith. I did not think I had any choice. It was not an
option for me.
Senator Donnelly. Okay. Mr. Hunt, from the way these loans
are repaid, would you agree they--or lines of credit, as you
put it--would you agree they are fairly minimal risk?
Mr. Hunt. Minimum risk for the customer or minimum risk for
the bank?
Senator Donnelly. For the bank.
Mr. Hunt. Yes, only because----
Senator Donnelly. If there is direct deposit.
Mr. Hunt. I do, only because of the requirements you have
to meet before a person gets access to a deposit advance
product. We have done our homework on the customer.
Senator Donnelly. Okay. And now, the average amount the
bank is paying for the money--a lot of savings accounts are one
percent now, somewhere in that neighborhood. Say the average
rate that the bank is paying for their funds, one percent,
maybe two percent. How is 36 percent not a fair interest rate
on these deposits?
Mr. Hunt. Yes. So, Senator, as you well know, we do not
charge interest rate or APR. It is a fee. It is a fee for
service for people who need this assistance. And I think it is
very simple in the disclosure. It says it is $7.50 for every
$100, $2 for $20, $1.75 for $20. So it is not interest rate. I
concur with Senator Collins' statement----
Senator Donnelly. So your fee rate----
Mr. Hunt. It is a fee rate.
Senator Donnelly [continuing]. Comes out to be 200 percent
a year.
Mr. Hunt. Well, it depends, sir. It depends if you are
doing it over a two-day loan. Is it a 35-day loan--I am sorry,
line of credit? It depends on the line of credit. It is a fee
for it.
Senator Donnelly. Yes, Ms. Borne. Thank you for raising
your hand.
[Laughter.]
Ms. Borne. If I could just interject quickly on this, so
the fee per $100 that the banks charge is a finance charge. It
is a charge in exchange for credit. Through a loophole by which
the banks claim that their loans are open-end, they are not
currently disclosing an APR, but an APR is the best way to
compare the cost of credit across credit products.
The studies have shown that they average 225 to 300 percent
in APR terms, and even the CFPB, when it looked at deposit
advance recently in its report, it did use APR as a manner of
comparing the cost of bank payday loans to loans by other
lenders.
Mr. Hunt. And I would just say about APR, I think they are
the most confusing item out there. The Fed, when they were
looking at overdraft services, dismissed using APR because, A,
they could not explain it, and B, customers could not
understand it.
Senator Donnelly. Well, it gives you a fairly ballpark idea
what you are paying for----
Mr. Hunt. Well, I will tell you this. You are about to vote
on a student lending bill and the Federal Government does not
put an APR on Federal student loans because they know they
cannot explain it nor can it be understood, either. And these
are lines of credit, not for the whole year. There is nothing
annual about a line of credit----
Senator Donnelly. Well, it is simple math, though. Here is
the fees, or whatever you want to call it. You know, you can
call it a motorcycle or a motorsickle. You can call it about
anything you want.
Mr. Hunt. Right.
Senator Donnelly. And one of the things you commented on,
you said you want to make this the least costly possible for
Ms. Smith. And I guess I would say, if you look at this product
that comes out 200-plus percent, are you meeting that goal?
Mr. Hunt. I think any time we meet the goals of the
customer, and this is a demand-driven product----
Senator Donnelly. Well, but the goal----
Mr. Hunt. It is two for 20----
Senator Donnelly [continuing]. But you said the least
costly possible way to do it.
Mr. Hunt. I am sorry. Say that again, please.
Senator Donnelly. You had mentioned in your statement the
least costly possible way to do it.
Mr. Hunt. Sure. Sure. And we think the charges--the line of
credit fees that we charge are very competitive.
Senator Donnelly. Well, I----
Mr. Hunt. And I will tell you, sir----
Senator Donnelly. I do not disagree, I mean, in terms of
other products for those people. But is it not profitable
enough for these banks to, instead of here is your fee for this
money, to use a 36 percent interest rate, or 37, or 35, or 34?
I mean, they are paying one percent for the money.
Mr. Hunt. Well, Senator, I am not going to get into a
debate whether we should use percentages or fees. We think, for
the customer, it is much easier to understand it is $2 for
every $20, or $10 for every $100.
And I would tell you, if you really want to have
competition, why do we not encourage banks to get into this
process for more competition and have people stay in the
regulated industry? The worst thing we can do is increase the
underbanked numbers and unbanked numbers. We get criticized,
sir, for having people pay their lines of credit on time. I
think that is wrong.
Senator Donnelly. I am not criticizing you. I am just
asking you. Do you think that it is appropriate for some of the
most respected banking names to be making 200 percent plus off
of their customers?
Mr. Hunt. First off, I do not accept that it is 200 percent
because it is a line of credit. It is not a loan. If we were
charging 200 percent for a home mortgage, I am with you.
Senator Donnelly. No, that is----
Mr. Hunt. That is too much.
Senator Donnelly. You know----
Mr. Hunt. But this is not a loan. This is a line of credit.
Senator Donnelly. You know that is not what we are talking
about. I mean, this is a woman who paid, on average, 200
percent plus. You can call it a fee. You can call it whatever
you want. But that is about what the extra funds that were paid
on this averaged out to for the amount that was loaned. And all
I am asking is, in regards to the institutions that are doing
this, do you not think they could do better?
Mr. Hunt. I really do not think we ought to get in the
business of price setting. We saw what happened on----
Senator Donnelly. I am not asking you to set prices.
Mr. Hunt [continuing]. I mean, that has gotten worse.
Senator Donnelly. I am just asking you, do you not think
they can do better than having fees and such add up to over 200
percent plus on the money?
Mr. Hunt. Again, Senator, I am not trying to be difficult,
but we do not charge a percentage. It is a line of credit that
the customer must pay off before they have an opportunity to
have another line of credit. This is their choice.
Senator Donnelly. I----
Mr. Hunt. It has to be reasonable. It has to be
proportionate. There are UDAP violations if we are taking
advantage of a customer. We work with regulators all the time
on this product and other products, as well.
Senator Donnelly. My time is up, Mr. Chairman. I will
pass--no, I guess the question is reasonable. We have different
views on what is reasonable.
Mr. Hunt. Sure. Thank you, though.
Mr. Shaul. Mr. Chairman, may I correct myself?
The Chairman. Please.
Mr. Shaul. I am unable to exit the office without a brain
trust behind me and my brain trust, I am sure, after hearing
from some of our members, wants to make clear that our
disclosure does include a dollar amount as well as an APR. So I
misspoke to Senator Collins.
The Chairman. How is that different from Mr. Hunt's? He--
you represent the Community Financial Services Association and
Mr. Hunt represents the Consumer Bankers Association.
Mr. Shaul. Correct.
The Chairman. So yours does have that----
Mr. Shaul. We have an APR.
The Chairman. APR----
Mr. Shaul. And then we have an actual dollar amount that is
paid, as well.
The Chairman. And your members, Mr. Hunt, do not?
Mr. Hunt. Ours is a line of credit. It is not a loan. And
we show $2 for $20, $10 for $100, however you want to slice and
dice it. It is clear. It is transparent. It is up front.
The Chairman. Well, let me ask you, how does someone--and
chime in, Senator Donnelly, if you have any other questions--
how does someone who is on Social Security ever get out from
under this loan when the whole amount must be paid back out of
their next Social Security check?
Mr. Hunt. Yes, Mr. Chairman, I appreciate the question very
much on it. It is a great debate. Do we have people pay this
loan--this line of credit back immediately or do we let them
finance it over months? I thought in this country it was always
better to pay off your debt, and now we are getting in trouble
for having consumers pay off their debt. They have to pay off
that line of credit before they get access to another.
Now, hearing from consumers, hearing from regulators,
hearing from members of Congress, some of these banks have now
said, okay, even though we do believe a person should pay this
off as they agreed to, we are going to give them the option to
pay longer, over three to four months' period of time. But, if
we give them the opportunity, we are not going to allow them to
access their line of credit.
So we get criticized for asking people to pay their
agreement on time and then we get criticized for making them
have a longer opportunity, as well. So we give them the best.
We can say, you are going to get paid--you are going to have to
pay this off at your next direct deposit or an extension. The
choice is now yours.
The Chairman. If they have that choice.
Mr. Hunt. That is correct. But remember, now, before they
get a line of credit----
The Chairman. We have an example here with Ms. Smith that
she did not have that choice. She was never told that.
Mr. Hunt. Every consumer has a choice not to extend the
line of credit. They also cannot get another line of credit,
sir, until they pay that line of credit off. It has to be paid
off before they get access to another line of credit.
The Chairman. Well----
Mr. Hunt. And a cooling off period, sir.
The Chairman. Here is what I do not understand. Banks like
their customers to think that they are there to help them as
financial advisors. What is the best product for you? Now, if
you know that someone on Social Security, that the whole amount
is going to be paid the next time they get their Social
Security payment, and you know that is what they are living on,
would that not trigger the bank to say, this might not be the
right product for you, that there is a different product?
Mr. Hunt. So, Mr. Chairman, we have a right and
responsibility to give the facts to the consumer. We always
tell them through financial literacy there may be less
expensive products. It is clear as day in the disclosures that
this is an expensive product, that it must be paid back, and it
will be paid back with the next direct deposit, assuming it was
reoccurring, and they must qualify for it.
We are not going to be the parents of customers. We think
they have the right to choose the product they so desire. If we
present it in a clear and transparent manner, back that up with
financial literacy that we do--we text people, we mail people,
we do everything but fly a helium balloon over saying there
could be less expensive items--we do everything we can to make
sure we act in a responsible way for the consumer. But at the
end of the day, sir, it is up to the consumer to choose which
product they want to have.
Some of the biggest criticisms we receive from people who
use this product is why is there a cooling off period, when we
have done everything we have been taught from the second grade
to pay off our debt, and here we go, paying off our debt, and
you are taking something away from us. And it is a very popular
product until that occurrence happens, sir.
The Chairman. Mr. Shaul, did all of this advance payment
thing, did this really start when the use of electronics and
electronic payments--of which almost all Social Security
payments now are made by electronic payment instead of by paper
checks, therefore, it is an easy thing for the banks to access
to pay off the advance payment--did all of this just start when
Social Security started making electronic checks?
Mr. Shaul. I do not think so, Senator. I mean, what had
been the traditional mode before that was that we would take a
check that would be deposited on the payday and often--in
nearly all instances--the person would be called in advance to
be sure that the check would be good. Within the bank itself, I
suspect the situation would be different because they would
have accurate knowledge of the high and low points of the
account at all times.
The Chairman. This committee has a responsibility to the
elderly and the senior citizens of this country, and I want to
ask both of you--Ms. Borne, as well--if we have a system like
this, are we not setting up Social Security recipients to fail?
What do you think, Ms. Borne?
Ms. Borne. You know, I think I would just point out that,
as has already been remarked on here today, it is very unlikely
that a Social Security recipient on a fixed income is going to
be able to repay an expensive loan in full in two weeks. It is
extremely likely they will end up in a long-term cycle of debt
and that that cycle will leave them worse off than they were
before they ever took out their initial loan.
Mr. Shaul. If I may, Senator----
The Chairman. Please.
Mr. Shaul [continuing]. Three points. As I have indicated,
the percentage of our borrowers who are senior citizens
actually is less than their average across the population.
The second point is, it is true that there is a danger
here, no question about it. If you track expenditures of those
who are elderly, they tend to be more fixed than those who are
younger because their aspirational goals and so on are a little
less. But the danger is a real one, no question about it.
I think it goes to this question that I feel strongly about
that is a difficult one for us to do, both in terms of
profitability and also in terms of the customer himself. Part
of underwriting has to be to look at the person's condition in
detail. And, obviously, if you are doing underwriting and you
are looking at a Social Security recipient, you have a
different case than if you were looking at someone who has a
wide variety of incomes.
The Chairman. That is exactly right, and what is the risk
to the bank when there is a guaranteed Social Security payment
coming in the next month? And that has got to be taken into
account here.
Mr. Shaul. Yes. That is different from our storefronts, of
course, but I grasp the point that it is not different in the
sense that if that person has written us a check and so forth,
we are in the same position in that sense.
The Chairman. Do you all have any further questions?
Mr. Hunt. Senator, if I can just add on to that----
The Chairman. Yes, please.
Mr. Hunt. We do not want an unhappy customer. That is not
good for the banking institution. It is not good for the bank.
We want to do everything we can to make sure the customer
receives the right product at the right price with the right
disclosures.
The Chairman. I believe that you believe that.
Mr. Hunt. Yeah.
[Laughter.]
The Chairman. But, Mr. Hunt, you have got some unhappy
customers and you have got some unhappy Senators who represent
those unhappy customers----
Mr. Hunt. And, Mr. Chairman, I----
The Chairman [continuing]. That are trying to straighten
this thing out.
Mr. Hunt. And we want to help them if there is some--but I
would tell you this, sir. The vast, vast, vast customers,
seniors, pay off their obligation. They do it. I do not want
people to think that seniors are not paying it or they cannot.
The vast majority are doing it. They are----
The Chairman. That is not the question here, and in terms--
again, I just repeat myself. In terms of risk to the bank, what
risk is there? You have got the Social Security. As long as
there is the United States Social Security Administration, you
have got that coming in.
So, I want to thank everybody. It has been a good
discussion. I do not want you two to think that we picked on
you, even though we have.
[Laughter.]
Mr. Hunt. And probably will again.
The Chairman. Not if we get this thing straightened out.
Mr. Hunt. We look forward to working with you.
The Chairman. Well, that is going to depend on really what
you do, go back to your member banks, and I see some of them
out here in the audience, some of them that are dear friends of
mine. And I want you all to address this, because this is not
right on what has been testified here today.
Ms. Smith.
Ms. Smith. I just have one thing to say to some of his
comments about paying off your debt. Someone asked me recently,
why did you not just take your money out of Wells Fargo and go
somewhere else? What would they do to you? And there is not
probably much they could do to me because I do not have
anything to take. They could harass me a long time with credit,
you know.
But I did come from the generation of where you do pay your
debts and that is why I stayed and allowed this to continue,
because I did owe the debt. I did make the loan. And I did pay
it. They took it. So, I am a little insulted about that, you
know, because I could have done that.
The Chairman. You know, you mentioned that you are part of
that generation. Let us hope that that passes to every
generation.
Ms. Smith. Yes.
The Chairman. We are a nation of laws. That is what sets us
apart from other countries on the face of Planet Earth, is that
we respect the rule of law. Now, we just need to make sure, and
I am looking at the CFPB and I am looking at the FS--I cannot
even say it, there are so many acronyms--Federal Deposit
Insurance Corporation--I am talking about the Comptroller of
the Currency and others--to make sure that the laws are being
effectively administered. And then if there is inadequacy in
the law, we need to know about it so that we can address that
through the making of laws.
Well, it has been a robust discussion. I want to thank
everybody. And I would suggest that we have, as a result of
this discussion, I suggest that the financial community be
proactive on a going forward basis. And I would ask you all to
provide all disclosures for each of your banks offering these
products to this committee by the close of business next
Wednesday.
I want to continue to encourage the FDIC and the OCC to
move forward with the guidance that they have proposed and
finalize those rules to protect the consumers, such as we have
heard today. Some of us on this committee have already filed a
public comment in support of the work that is being done by the
FDIC as well as the OCC.
And so for all of you who have been very patient and
participated in this robust discussion, thank you and the
meeting is adjourned.
[Whereupon, at 4:24 p.m., the committee was adjourned.]
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