[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]






 
                        SHORT-TERM, SMALL DOLLAR


                      LENDING: THE CFPB'S ASSAULT


                        ON ACCESS TO CREDIT AND


                        TRAMPLING OF STATE AND


                           TRIBAL SOVEREIGNTY

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 11, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-73
                           
                           
             
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

                   RANDY NEUGEBAUER, Texas, Chairman

STEVAN PEARCE, New Mexico, Vice      WM. LACY CLAY, Missouri, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL POSEY, Florida                  RUBEN HINOJOSA, Texas
MICHAEL G. FITZPATRICK,              DAVID SCOTT, Georgia
    Pennsylvania                     CAROLYN B. MALONEY, New York
LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
MARLIN A. STUTZMAN, Indiana          STEPHEN F. LYNCH, Massachusetts
MICK MULVANEY, South Carolina        MICHAEL E. CAPUANO, Massachusetts
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANDY BARR, Kentucky                  DENNY HECK, Washington
KEITH J. ROTHFUS, Pennsylvania       KYRSTEN SINEMA, Arizona
FRANK GUINTA, New Hampshire          JUAN VARGAS, California
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
MIA LOVE, Utah
TOM EMMER, Minnesota

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 11, 2016............................................     1
Appendix:
    February 11, 2016............................................    69

                               WITNESSES
                      Thursday, February 11, 2016

Haynes, Frederick Douglass III, Senior Pastor, Friendship-West 
  Baptist Church, Dallas, TX.....................................    48
Miller, Thomas W., Jr., Visiting Scholar, Mercatus Center, George 
  Mason University...............................................    46
Shaul, W. Dennis, Chief Executive Officer, Community Financial 
  Services Association of America................................    42
Sherill, Robert, consumer........................................    45
Silberman, David, Acting Deputy Director, Consumer Financial 
  Protection Bureau..............................................     8
Simmons, Kelvin, testifying on behalf of the American Financial 
  Services Association...........................................    44
Treppa, Hon. Sherry, Chairperson, Habematolel Pomo of Upper Lake.     6
Zoeller, Hon. Greg, Attorney General, State of Indiana...........     5

                                APPENDIX

Prepared statements:
    Haynes, Frederick Douglass III...............................    70
    Miller, Thomas W., Jr........................................    73
    Shaul, W. Dennis.............................................    80
    Sherill, Robert..............................................    91
    Silberman, David.............................................    94
    Simmons, Kelvin..............................................   103
    Treppa, Hon. Sherry..........................................   129
    Zoeller, Hon. Greg...........................................   135

              Additional Material Submitted for the Record

Tipton, Hon. Scott:
    Letter to CFPB Director Richard Cordray from Cynthia H. 
      Coffman, Colorado Attorney General, dated October 15, 2015.   138
Waters, Hon. Maxine:
    Written statement of Faith for Just Lending..................   140
Sherill, Robert:
    Written responses to questions for the record submitted by 
      Representative Ellison.....................................   142
Silberman, David:
    Written responses to questions for the record submitted by 
      Representative Ellison.....................................   144
    Written responses to questions for the record submitted by 
      Representative Sinema......................................   145


                        SHORT-TERM, SMALL DOLLAR



                      LENDING: THE CFPB'S ASSAULT



                        ON ACCESS TO CREDIT AND



                         TRAMPLING OF STATE AND



                           TRIBAL SOVEREIGNTY

                              ----------                              


                      Thursday, February 11, 2016

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 1:01 p.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Pearce, Lucas, 
Posey, Luetkemeyer, Stutzman, Mulvaney, Pittenger, Barr, 
Rothfus, Guinta, Tipton, Williams, Love, Emmer; Clay, Hinojosa, 
Scott, Maloney, Sherman, Heck, Sinema, and Vargas.
    Ex officio present: Representatives Hensarling and Waters.
    Also present: Representatives Stivers, Green, Carney, and 
Ellison.
    Chairman Neugebauer. The Subommittee on Financial 
Institutions and Consumer Credit will come to order. Without 
objection, the Chair is authorized to declare a recess of the 
subcommittee at any time.
    Today's hearing is entitled, ``Short-term, Small Dollar 
Lending: The CFPB's Assault on Access to Credit and Trampling 
of State and Tribal Sovereignty.''
    Before we begin, I would like to thank the witnesses for 
traveling to Washington, D.C., today for the hearing. Many of 
you had pretty long commutes, and we appreciate your time and 
your willingness to participate in this process.
    I now recognize myself for 5 minutes to give an opening 
statement.
    Today, we hold a hearing to exam the short-term, small 
dollar credit marketplace and examine the CFPB's efforts to 
regulate the market for the first time at the Federal level. 
This hearing is especially timely given the Bureau's efforts to 
put out a proposed rule in the next month or two.
    Short-term, small dollar credit is essential to millions of 
Americans. According to the FDIC, roughly 51 million American 
consumers are unbanked or underbanked, meaning they don't have 
sufficient access to traditional banking services or products.
    Short-term credit customers are disproportionality drawn 
from low- or moderate-income segments of the population. These 
individuals are more likely to have a limited discretionary 
income after necessities and to be much more vulnerable to 
unexpected expenses. Fortunately, these individuals have been 
able to access a variety of products from non-bank lenders, 
from payday loans, to vehicle title, installment lending, and 
the marketplace is evolving and, more importantly, it is 
becoming much more competitive.
    The characteristics that makes these sorts of loans 
distinctive is their availability to consumers who have 
difficulty qualifying for many types of credit. These loans may 
not fit the needs of all consumers in all circumstances, but 
they are often essential to forestall consumer harm.
    Last week, I had an opportunity to visit a small dollar 
lender in Virginia. In addition to seeing the sophisticated 
backroom underwriting process and understanding the diverse 
product offerings other than the credit products, I had the 
chance to actually talk to the very customers who use these 
products.
    One couple that I met with were taking out their very first 
payday loan. The husband told me he works nights and that 
public transportation was not reliable. His family's car was in 
the shop, and he had to get it out so he could make it to work 
that night. He had two options--miss a day of work and risk 
losing his job, or take a short-term loan to get him through 
this emergency.
    This is the same story that is repeated over and over in 
letters that I get from my constituents in the 19th District of 
Texas. From the mother of five, to the disabled veteran, to the 
painter trying to get a truck repaired, a common theme emerges 
in all of these stories, and it is: Please don't take away my 
choice and my availability to use these products.
    Unfortunately, the CFPB's efforts are yet another example 
of Washington-knows-best mentality. Using behavioral 
economics--which very principles say policymakers should make 
choices for unsophisticated individuals--the CFPB has set down 
a road of paternalistic erosion of consumer product choices and 
access to credit.
    By its own analysis, the Bureau expects roughly a 60 
percent to 70 percent market contraction of these products. 
This is the type of behavior that people across this country 
are tired of seeing coming from Washington.
    Now my colleagues on the other side of the aisle will point 
out that there are high APRs associated with many of these 
products. But I must remind them the vast majority of these 
products aren't annualized. The consumers we will hear from who 
use these products today aren't thinking about using these 
products over a course of a year. They are in and out of the 
product to meet a short-term need, and paying a service charge 
to access those funds quickly. I, and many consumer-lending 
scholars, believe that APR is not the appropriate way for 
consumers to measure the cost of these products.
    Other constituencies that I have heard from regarding the 
Bureau's efforts are States and tribal nations. Short-term, 
small dollar loans are historically State-regulated products. 
Yet, the Bureau explicitly states that proposals under 
consideration, if implemented, would establish a Federal floor 
for consumer protection of covered loans.
    Despite this recognition, the Bureau has made no signs of 
showing that any State or Tribe lacks the authority to regulate 
these products, nor has it shown that any State or Tribe is 
incapable of adequately protecting its citizens from potential 
risks associated with using them responsibly.
    Of the 50 States, the legislatures of 35 have deliberately 
enacted small dollar lending laws of varying protections, 
including and up to outright bans. The remaining 15 States have 
also addressed this issue, either by affirmatively declining to 
enact an authorizing law to govern the industry or choosing to 
regulate through interest rates.
    Crucially, and contrary to the Bureau's appeal to a greater 
moral obligation, no State lacks the authority to enact, 
repeal, or amend its own payday lending laws in order to 
provide greater protections to its consumers. In fact, we are 
going to hear in the Washington State example, that the State 
legislature amended its own law after realizing that the 
previous version had a problematic impact of decreasing credit 
availability. Unfortunately, the Bureau has ignored this 
reality.
    Acting Director Silberman, who is testifying today, told 
this committee last April that, ``We have not thought about a 
State that doesn't have the authority.''
    And in an effort to double down, Director Cordray has told 
this committee, ``I am not thinking about it,'' meaning the 
rule this way.
    As we hear testimony from this panel of witnesses, I hope 
everyone will remember the rulemaking in this case is 
discretionary and was not statutorily mandated. This is an 
example of the Executive Branch making the choice to preempt 
State laws without the direction of this Congress. This should 
give us all pause.
    In conclusion, I hope members will leave today's hearing 
with a better understanding about the people who use the 
products, why they are important, and how they are already 
regulated.
    And with that, I now yield 5 minutes to my good friend, the 
ranking member of the subcommittee, Mr. Clay from Missouri.
    Mr. Clay. Thank you, Chairman Neugebauer, and thank you to 
each of today's witnesses for your testimony.
    Mr. Chairman, I realize that this issue does not find us in 
the same place. And I am sure that this hearing will highlight 
the reasons why.
    With the APR on small dollar loans in Missouri averaging 
454 percent, thousands of vulnerable Missourians continue to 
fall victim to costly small dollar loans. Even after reforms in 
Missouri law, payday lenders can still assess fees equally up 
to 1,950 percent APR. Equally problematic, vehicle title loans 
in Missouri have grown dramatically after Missouri's so-called 
reforms, where in 2014 alone, TitleMax repossessed 8,960 cars 
in Missouri.
    And last summer, Attorney General Chris Koster shut down 
eight online tribal lenders from operating in Missouri after 
finding that these lenders were not properly licensed in 
Missouri and charged illegal fees on their payday loans.
    Our experience in Missouri underscores the real need for 
minimum national standards for small dollar lending, and States 
simply cannot be expected to adequately protect consumers and 
rein in a $46 billion industry acting alone. The CFPB should be 
commended for their work to date in seeking to develop minimum 
national standards that can coexist with current State laws, 
but that also ensure access to affordable credit.
    And central to the question of ensuring affordable access 
to credit is understanding what constitutes a fair interest 
rate for a payday loan. More specifically, I hope that today's 
testimony can clarify why a 36 percent interest rate is good 
enough for military personnel but not for the thousands of 
Missourians who use small dollar products.
    I also hope that we can gain some clarity on the universe 
of more responsible alternatives that already strike the 
appropriate balance between access, affordability, and consumer 
protection.
    Thank you again, to each of today's witnesses.
    And at this time, I would like to yield the balance of my 
time to the ranking member of the full Financial Services 
Committee, Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Clay.
    To Mr. Neugebauer, the chairman of this subcommittee, and 
Ranking Member Clay, I am very appreciative for this hearing 
today. And, Congressman Clay, I want to thank you for all the 
work that you have done. You have tried for some period of time 
now to work with the payday lenders and to come to some 
agreements about what is fair and what is predatory. And 
whether it is with regard to mortgages or credit cards or small 
dollar loans, we all agree on one thing: that access to credit 
is important.
    However, there is also an important distinction in what we 
believe. We are focused right now on what is happening in 
Flint, Michigan, where children are being poisoned because 
there is lead in the water. The residents of Flint have 
plentiful access to water. Surely all of my colleagues agree 
that access to water, any water, is not enough, if that water 
is contaminated with lead, or if that water is a vector for 
Legionnaire's Disease. I am very concerned about what kind of 
water our citizens have access to, and I believe in access to 
clean, drinkable water. We all do.
    However, I also believe the same about mortgages and credit 
cards and payday loans. Consumer credit products shouldn't be 
available if they hurt their customers. We depend on our State 
regulators and the CFPB to make sure that our constituents 
don't have access to just any kind of credit, but to safe and 
fair credit products that won't put them and their families at 
risk.
    Too many credit products are contaminated with predatory 
fees, reckless underwriting, and toxic fine print. I think my 
Republican colleagues should agree that access to loans, like 
access to water, should be safe. I believe our job and the job 
of the CFPB is to ensure access to safe, affordable credit to 
everyone.
    I look forward to discussing how we can support the CFPB 
and their mission. I yield back the balance of my time.
    Chairman Neugebauer. Before we turn to our witnesses, I ask 
unanimous consent to allow non-subcommittee members to ask 
questions after all subcommittee members have finished. Without 
objection, it is so ordered.
    Today, I would like to welcome our first panel of 
witnesses. We will introduce each panel separately, but in 
panel number one, we have the Honorable Greg Zoeller, the 
attorney general for the State of Indiana; the Honorable Sherry 
Treppa, chairperson of the Habematolel Pomo of Upper Lake; and 
Mr. David Silberman, acting Deputy Director of the CFPB.
    Mr. Zoeller, you are now recognized for 5 minutes.

  STATEMENT OF THE HONORABLE GREG ZOELLER, ATTORNEY GENERAL, 
                        STATE OF INDIANA

    Mr. Zoeller. Thank you, Mr. Chairman, and members of the 
subcommittee. I am here really to thank you for the opportunity 
to speak today and really not talk so much on the policy side, 
which is really the focus of what a lot of the testimony will 
be on, but really about the role the attorneys general play in 
terms of our own efforts to regulate the credit space that you 
are focused on.
    I was involved when the legislature in Indiana had some of 
these same discussions about, how do you properly balance the 
access to credit with the protections against predatory 
lending? Some of the people who are engaged in this same 
hearing were involved with that. And we do have a difficult 
time.
    I will let others argue the policy side. I am here really 
to argue the role of the sovereign states. I will just stick 
with my own, but in Indiana, we have done a fairly competent 
job of regulating this space. And when there are problems, 
there are amendments to the regulations. There is legislation. 
And we passed a number of bills. In fact, a lot of it looks 
much like what the CFPB has proposed. So it is not that we are 
unfamiliar with the types of arguments or what has been put 
into our regulations, but really it is the fact that in Indiana 
we have a fairly competitive market. We have made the balancing 
as it relates to our own State.
    I have heard the complaints from different parts of the 
State. You get up near Chicago, near the lake, there are 
efforts about we should have looser regulations. We can go over 
into Chicago and get different kind of loans. You can cross the 
borders and get other loans.
    We have the same kind of pressures that, why do you have to 
regulate it out of the State when we could do these things on a 
more local level? But my argument to you today is that the 
States are free to choose. We have a legislature that has to 
make these same balancing arguments based on our own borders 
and our own people. It is not that we don't care about the 
access to credit or the predatory lending. So we are doing 
these same things in our sovereignty.
    What I am here to argue is to let the States protect our 
own people. If we need your help, we will call. But I think the 
State of Indiana and other sister States are free to, let's 
say, explore our own opportunities. This is a very diverse type 
of market, especially on the online space, so these are very 
fast moving types of products that we will regulate and see if 
we do it better than other States.
    If you can come in and solve all the problems in all 50 
States, it would be surprising to me. So, again, I have worked 
with Director Cordray when he was an attorney general in Ohio. 
A lot of the people I have a lot of respect for. They have 
really not engaged in each of the discussions with different 
States or they would have recognized that we don't ask for 
their help.
    So, again, it is not that this is not space that shouldn't 
be regulated. We do it in Indiana, and, again, it is not all 
that much different than what the CFPB is proposing. It is just 
a question of who is going to regulate and whether that is what 
the people of our State wish.
    The same arguments that I have heard about needing to 
protect people, I hear all the time that States can't be 
expected to regulate in a big industry. You could essentially 
shut down all of the role of an attorney general with that kind 
of approach. We would no longer need State regulation if 
Washington would just regulate the country as a whole, like 
they do in Europe. They don't have States that have their own 
sovereign. That is what makes us unique.
    We do have Federalism. And I am here to defend the 
Federalist principles that really allow the sovereignty of 
Indiana to stand up and to be responsible for protecting our 
own people, allowing access to credit. And if we make mistakes, 
we are free to do that, and we will fix it ourselves. We won't 
come back to Washington and ask for little minor changes, 
because of the changing landscape of these very diverse 
products. We are much more flexible. We are much more able to 
address these things on an ongoing process. Coming back to 
Washington and trying to get something done to protect our 
consumers is not something I am anxious to do.
    We can do it much more pliably and flexibly at a State 
level than coming back here and asking this committee and the 
CFPB to engage in the local nuances that we are finding in our 
State. We had five complaints last year. We have handled those 
pretty efficiently. And if we need more help from Washington, I 
will call you.
    Thank you.
    [The prepared statement of Mr. Zoeller can be found on page 
135 of the appendix.]
    Chairman Neugebauer. I thank the gentleman. Ms. Treppa, you 
are recognized for 5 minutes.

    STATEMENT OF THE HONORABLE SHERRY TREPPA, CHAIRPERSON, 
                 HABEMATOLEL POMO OF UPPER LAKE

    Ms. Treppa. Chairman Neugebauer, Ranking Members Clay and 
Waters, and members of the subcommittee, thank you for the 
opportunity to testify at this important hearing. My name is 
Sherry Treppa, and I am the chairperson of the Habematolel Pomo 
of Upper Lake, a federally recognized Indian Tribe.
    I have served on the Tribe's executive council for the past 
11 years and as Chair since 2008. I also am the vice 
chairperson of the Native American Financial Services 
Association, an intertribal organization advocating for tribal 
sovereignty and responsible business practices in e-commerce.
    Our Tribe owns online lending businesses. I want to share 
how we regulate these businesses and the considerable tools we 
use to protect consumers. I will also offer my thoughts on the 
CFPB's effort to restrict this marketplace and the impact that 
it will have on consumers and Tribes.
    Our Tribe has resided in rural Upper Lake, California, 
since time immemorial. Our people flourished until migration 
and settlement brought conflict and diseases, and in one 
generation, reduced the Pomo Indian population by nearly 95 
percent.
    Flawed Federal policies further subjected our people to 
enslavement, internment, abuse, and slaughter. In 1956, the 
California Rancheria Act terminated our Federal recognition. 
Despite these efforts to destroy our Tribe, we persevered. From 
1975 to 2004, we fought and succeeded in restoring our Federal 
recognition. The inherent sovereignty of Indian Tribes predates 
the United States and is memorialized in the Constitution and 
affirmed in numerous court decisions and statutes.
    Congress has consistently acknowledged a Tribe's authority 
to govern its own jurisdiction. Indeed, the Dodd-Frank Act 
recognizes the Tribe's role in consumer protection by granting 
it the same authority as both States and the CFPB in bringing 
legal actions. When our Tribe decided to enter the industry, we 
took thoughtful, measured steps based on our sovereign power to 
regulate the businesses that would operate within our 
jurisdiction.
    The lending ordinance we enacted requires lenders to be 
licensed. It also imposes ongoing compliance obligations. It 
prohibits tribal lenders from using practices that are unfair, 
deceptive, or misleading to customers, and established an 
independent regulatory authority to oversee lending operations.
    Pursuant to our ordinance, tribal lending entities may not 
charge consumers an application fee or penalize them for early 
repayment. Lenders also must maintain a system to ensure 
compliance with tribal and applicable Federal law, written 
policies that cover all aspects of lending, including 
underwriting and internal controls to ensure that their 
operations follow their policies.
    Our regulatory commission conducts regular audits. If 
deficiencies are identified or if a lender is non-compliant, 
the commission is empowered to issue fines, penalties, or 
revoke the lending license. The Tribe takes consumer protection 
seriously for an important reason--it receives 100 percent of 
the net income from loans made by these businesses. This allows 
us to fund important government services including elder care, 
education assistance, and vital social service programs.
    Our regulatory framework and loan products together 
successfully meet both the Tribes' and consumers' needs. We do 
not offer payday loans. Our lenders offer loans that are repaid 
in installments and are not eligible for rollovers.
    Our Tribe's commitment to consumer protection is reflected 
in these following statistics. In 2015, only 2 percent of all 
applications submitted were approved and funded. Put another 
way, 98 percent of new customers are rejected in underwriting. 
Although loans have a 10-month schedule, most customers repay 
their loans in 4 months. Customers have moderate borrowing 
patterns with an average of 1.6 loans in 2 years.
    Finally, our complaint volume in 2015 was less than 2 
percent of all loans issued. Our statistics underscored that 
tribal self-regulation can successfully achieve responsible 
lending and consumer protection. Before the CFPB seeks to 
impose new regulations, I would first ask them to acknowledge 
the rigorous regulatory framework that our Tribe has created 
and that our lending businesses are operating within. The 
answer is clear--additional CFPB rules are not necessary 
because all of the tools necessary to protect consumers already 
exist.
    From my perspective, the CFPB's proposal would do nothing 
more than choke off consumer choice and access to needed 
credit, while destroying economic developments for 
opportunities for Tribes.
    Thank you for your time. And I am happy to answer questions 
at the end of the session.
    [The prepared statement of Ms. Treppa can be found on page 
129 of the appendix.]
    Chairman Neugebauer. Thank you. And now, Mr. Silberman, you 
are recognized for 5 minutes.

STATEMENT OF DAVID SILBERMAN, ACTING DEPUTY DIRECTOR, CONSUMER 
                  FINANCIAL PROTECTION BUREAU

    Mr. Silberman. Chairman Neugebauer, Ranking Members Waters 
and Clay, and members of the subcommittee, thank you for the 
opportunity to testify today. My name is David Silberman, and I 
serve as Associate Director of the Division of Research, 
Markets and Regulations at the Consumer Financial Protection 
Bureau. Last month, I also was named an acting Deputy Director.
    When the Dodd-Frank Wall Street Reform and Consumer 
Protection Act was enacted, payday loans were a particular area 
of concern to many in Congress. Indeed, the Dodd-Frank Act 
gives the Bureau plenary authority to supervise any entity that 
offers payday loans, regardless of size. As a result, when the 
Bureau began supervising non-depository institutions in 2012, 
payday lending was the first industry that was brought into our 
supervisory program.
    At the same time, the Bureau decided to begin the process 
of fact-finding to assess whether there was a need for Federal 
regulations to prevent unfair, deceptive, or abusive acts or 
practices in this market, as those terms are defined within the 
Act.
    In January 2012, the Bureau held a field hearing in 
Birmingham, Alabama, in order to hear directly from 
stakeholders and the public about actual consumer experience 
with small dollar loans. During the year that followed, the 
Bureau engaged in an in-depth study of the market, and based on 
that study, the Bureau issued a White Paper.
    That White Paper showed that making these short-term loans 
to low- and moderate-income consumers without assessing the 
consumer's ability to repay puts many consumers at risk of 
turning short-term emergency loans into a long-term expensive 
debt trap.
    In 2014, the Bureau published a second report. In that 
report, we traced borrower sequences and found that only 35 
percent of borrowers were able to repay the loan when due 
without quickly reborrowing, and that 15 percent of borrowers 
took out 10 or more loans in rapid succession. We found also 
that 50 percent of all loans went to consumers in these lengthy 
loan sequences.
    Looking at payday consumers who receive their incomes on a 
monthly basis, the report found that 1 out of 5 remained in 
debt for the entire 12 months of the Bureau's study. The 
consumers who fall into this category include elderly Americans 
and persons receiving supplemental security income and Social 
Security disability.
    Finally, the Bureau found that over the course of a 
sequence of loans, 20 percent of consumers end up defaulting 
and finding themselves in the hands of debt collectors. The 
Bureau then held a government-to-government tribal consultation 
with tribal leaders interested in small dollar lending to hear 
their input as we were thinking about how best to proceed. And 
all this brings me to the outline of proposals that are 
currently under consideration.
    The Bureau released that outline in March of 2015, when it 
convened a small business review panel to gather input from 
small entity representatives. The goal of the proposals under 
consideration is to prevent consumers from being offered 
unaffordable loans while still preserving access to affordable 
credit. To do that, the proposals under consideration would 
require that before making a loan, lenders would be obligated 
to make a good-faith, reasonable determination that the 
consumer has the ability to repay the loan. That is to say, the 
lenders would have to reasonably determine that after repaying 
the loan, the consumer would have sufficient income left to pay 
major financial obligations such as rent or mortgage and also 
to cover their basic living expenses, such as food or 
transportation or childcare or medical care, without the need 
to reborrow in short order.
    As an alternative to the basic prevention requirement, the 
proposals under consideration also contain protection 
provisions. These provisions would allow lenders to extend 
certain short-term loans without considering the ability to 
repay, so long as the loan satisfies certain screening 
requirements and contain certain structural protections to 
prevent short-term loans from becoming long-term debt, turning 
into a collections nightmare for the consumer.
    Stakeholders on all sides of the issue have provided us 
with valuable feedback on the proposals under consideration. 
Consumer advocates have argued that the Bureau should not 
permit any lending which does not meet the basic ability-to-
repay standard. Industry stakeholders argue that the protection 
alternative under consideration is too restrictive because 
these requirements would allow no more than three loans in a 
sequence or six loans in a year. State policymakers have urged 
the Bureau to both protect consumers across all small dollar 
lending markets and to seek feedback from the States on their 
regulation of small dollar lending products.
    After the Bureau released the proposals under 
consideration, we convened a second tribal consultation that 
was a frank discussion that allowed tribal leaders to share 
their views with the Bureau about the proposals. We continue to 
receive feedback from Congress, State, local and tribal 
officials, consumers, industry, and others. The Bureau's next 
step will be to formally issue a proposed rule, a rule which 
will seek to balance access to affordable credit with 
protecting consumers from loans that are beyond their ability 
to repay.
    Once the proposal is issued, the public will have the 
opportunity to make written comments. The Bureau will carefully 
consider those comments before final regulations are issued.
    Chairman Neugebauer, Ranking Members Waters and Clay, and 
members of the subcommittee, thank you for the opportunity to 
testify today. I look forward to your questions.
    [The prepared statement of Mr. Silberman can be found on 
page 94 of the appendix.]
    Chairman Neugebauer. I thank the gentleman. Mr. Silberman, 
I want to ask you a question before I get started with our 
questions. Have you ever visited a small dollar credit store?
    Mr. Silberman. Mr. Chairman, a number of members of my 
staff have done so. I personally have not.
    Chairman Neugebauer. I didn't ask about your staff. I said, 
have you ever personally visited a small dollar store?
    Mr. Silberman. As I indicated, I have not. They have.
    Chairman Neugebauer. Okay. I think that is a little 
disconcerting, because you are talking about a fairly major 
revamping of an industry that has been in place for a number of 
years and that millions of people are using on a daily basis to 
help manage the ups and downs of life. And for you to not go 
out and visit with people in the stores and visit the stores 
and understand better what is going on, doesn't speak well. So 
I would encourage you to make that trip before you make any 
final decision.
    Last April, you told me, ``We have not thought about a 
State that doesn't have authority.'' When moving forward this 
rule, have you done any more thinking about this issue? 
Specifically, which Tribe or State lacks the authority to 
regulate payday or small credit lending? Do you know of a State 
that does not have the authority to do that?
    Mr. Silberman. Mr. Chairman, as I hope I said when I was 
last before you, our mandate from the Congress is to enforce 
Federal law and ensure that every citizen has the rights 
provided by Federal law. One of those rights--
    Chairman Neugebauer. Do you know of any States or Tribes 
that aren't enforcing the Federal law?
    Mr. Silberman. The obligation to enforce the Federal law 
rests in the first instance on the Bureau.
    Chairman Neugebauer. I know. But I am just saying that you 
would be enforcing them if nobody else was. Where is the gap in 
the--where is the hole in the system that you feel like that 
the CFPB has to fill?
    Mr. Silberman. I think the gap is that the statute says 
that it is the obligation of the Bureau to issue rules to 
identify and prevent unfair, deceptive, and abusive acts and 
practices. Once we issue those rules, the States are free to 
enforce those rules, but it is in the first instance up to us 
to determine what rules are required to prevent such kind of 
unfair and abusive practices.
    That is why we have spent the last year studying this 
issue. That has led us to the determination that there is a 
problem that we need to address with respect to loans being 
made without regard to consumers' ability to repay.
    Chairman Neugebauer. I think a number of State attorneys 
general, including Mr. Zoeller, have said they think they are 
doing a pretty good job of regulating this space. They have 
been at it a lot longer than you have. Many of the States have 
had small credit or lending statutes on their books for a long 
time. They have had an opportunity, as been mentioned here, to 
balance between making sure that people are protected, but also 
making sure that they have access to credit.
    Have you found a State that is not enforcing their laws?
    Mr. Silberman. No, I think the States are enforcing their 
laws. And for the reasons you state, Mr. Chairman, what we are 
doing is establishing a Federal law floor, and the States will 
continue to be able to enforce their laws and their specific 
requirements in addition to the Federal floor that implements 
the obligation that has been placed upon the Bureau.
    Chairman Neugebauer. Here is kind of the problem. It is 
really up to the Congress to determine if it is appropriate to 
preempt a State's law; it is not up to the Bureau to do it. And 
to me, the fact that the Executive Branch has decided that they 
are going to preempt 50 States' rights to govern an area of 
finance in their States isn't up to the Bureau to do that. To 
me, that would be up to the Congress.
    One of the very things that people are very frustrated 
about right now, is they feel like that this Administration is 
trying to tell people how to run their lives. And I think when 
you are seeing this record turnout in some of these early 
primaries, both on the Democratic and Republican side, I think 
what you are seeing is an outrage at the direction of the 
country.
    So, Mr. Zoeller, what is your response to the fact that Mr. 
Silberman doesn't think you are doing a good job?
    Mr. Zoeller. I will leave it to the policymakers in our 
legislature to defend the weighing that they make. And I will 
defend their authority to do it. I guess there are a lot of 
things where States can't do it ourselves. And we will look to 
Congress to service in those areas, and this is not one of 
them.
    The policy decisions and the weighing of these collective 
rights and the balancing for our protections, I do go to our 
legislatures and argue these same areas where consumers are not 
being treated fairly. But, again, a lot of it is not 
necessarily that the CFPB's rule would, let's say, be bad in 
Indiana. It is that we are much more flexible, so when there 
are things that we need to change, I can go upstairs to our 
legislature and they usually will recognize a problem in 
Indiana, and we can address it.
    There are so many things changing in this area that I think 
the snapshot that the CFPB is taking might be their best guess 
today, but the ability to come back and change things is much 
easier at the State level to protect our consumers and maintain 
access to credit. So we will keep our own authority, thank you.
    Chairman Neugebauer. Last question. Yes or no? Are you 
enforcing the laws that your legislature had passed?
    Mr. Zoeller. Yes, sir.
    Chairman Neugebauer. Thank you. I now recognize the ranking 
member of the full Financial Services Committee, Ms. Waters, 
for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. Before I ask 
this question, I would just like to give a little bit of the 
backdrop.
    I receive many calls in my district office about people who 
are in trouble, people who are oftentimes low-wage earners, 
some as desperate as has been described here, but the fact of 
the matter is, they get hooked in the payday loan scenario. 
They start out by getting a loan. They can't afford to pay it 
back on time, so it is rolled over. Then, it is rolled over 
again. And they are never able to get a hold on their finances, 
and they find themselves doing six, seven, eight of these loans 
a year on and on and on and on. So it is a problem.
    And for anybody who says it is not a problem, you are 
wrong. There is a problem that has been identified dealing with 
payday loans. I, of course, have not been in a payday loan and 
asked to go in their back room and see their criteria or 
anything like Mr. Neugebauer, but I have not been in JPMorgan 
Chase, I have not been in Bank of America, and I have not been 
in Wells Fargo, any of them. And I am sure if I did, they 
wouldn't let me in their backroom, anyway.
    I just want to have it on record and to have us understand 
that the CFPB is not just venturing into something because they 
have nothing else to do. The fact of the matter is, it is a 
problem. There is a problem out there. And we are hearing about 
it from constituents. It seems to be spreading, you know, free 
money tree, get your money here, whatever those names are of 
these places are just springing up everywhere, particularly in 
poor communities. The poorer the community, the more of these 
street-level operations we have.
    While I normally do not believe in Federal preemption, I 
think we have a responsibility to step in when our constituents 
tell us they are hurting, that they think that they are not 
being treated fairly, that they think that they are being 
ripped off. We have a responsibility to do that. And we are 
seeing more of this kind of discussion from our constituents 
about the haves and the have-nots and the 1 percent.
    And they are hating government. They are hating 
corporations. They are hating the financial services community 
because even the middle class are not doing well.
    But I want to ask you, Attorney General Greg Zoeller, later 
today we are going to hear from financial services industry 
lobbyists on the second panel who will argue that the CFPB's 
proposed payday lending rule will choke off access to needed 
credit for vulnerable consumers. These lobbyists made the exact 
same arguments when the Department of Defense was working on 
amendments to the Military Lending Act that sought to protect 
servicemembers from excessive interest rates and fees on short-
term credit products.
    You wrote to the DOD asking them to strengthen, not weaken, 
their MLA rules in a latter with other State AGs from December 
2014. In essence, you rejected the industry's arguments as 
crying wolf. Why don't you think the industry is again getting 
it wrong when it comes to the CFPB's rules?
    Mr. Zoeller. I think that does help set this up, because we 
were working with Attorney General Beau Biden and a number of 
other people who were focused on the credit that is extended to 
military personnel who move throughout the State and throughout 
States. There may be more of a need for those consumers who 
aren't always under the protection of a State the same way that 
others are. So we do think that there are certain consumers who 
aren't residents, who may be transient. And I do think that the 
focus on the vulnerability of military personnel is somewhat 
of, I would say, a unique group.
    But in the other areas that you are talking about, in 
California, if they have had a problem and the attorney general 
there has not addressed it or the legislature, they might call 
and ask for the State to focus on it. And, again, we were 
asking Congress to look at some of these things as it relates 
to a different kind of category. But the people in our State 
are protected. Some of the military men and women, I think were 
a unique case.
    Ms. Waters. Let me just say this. We all know that it is 
politically powerful and safe to talk about protecting our 
military, because these are people who put their lives on the 
line for us, whether they are active or veterans or whatever. 
It is good politics to talk about helping veterans.
    But what is good for the goose is good for the gander. If 
you are willing to write letters to protect veterans from 
predatory lending practices, you ought to do that for 
everybody.
    I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentlewoman.
    And now the vice chairman of the subcommittee, Mr. Pearce 
from New Mexico, is recognized for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Zoeller, Ms. Treppa, I think you might be better 
qualified to answer. You heard Mr. Silberman's testimony that 
20 percent of the loans default. Do you find 20 percent default 
on your loans?
    Mr. Zoeller. No.
    Mr. Pearce. I was asking Ms. Treppa. Sorry.
    Ms. Treppa. Thank you for that question. No, we have quite 
far less than that kind of a default rate.
    Mr. Pearce. Okay. And, Mr. Zoeller, do you think that 
institutions across an industry would be able to stay in 
business if they had a default rate of 20 percent?
    Mr. Zoeller. Not in Indiana.
    Mr. Pearce. Yes. Mr. Silberman, I see in your testimony 
also that you declare that APR is 391 percent to 521 percent. 
What is a fair percent to where the CFPB wouldn't declare it to 
be extortion or abusive?
    Mr. Silberman. Thank you, Congressman. The CFPB has no 
authority to regulate interest rates.
    Mr. Pearce. I didn't say regulate. I said, when do you 
believe, as the CFPB, that it becomes abusive? Because you say 
you are after the abusive techniques. So when does a rate 
become abusive?
    Mr. Silberman. The CFPB views the abusiveness not about the 
rate, but about the practice of making a loan--
    Mr. Pearce. Why did you put the rate in your testimony if 
it does not apply to what you are trying to tell us today? Why 
did you put that in there? I find that offensive. Because you 
come in here and you try to mislead us on that, and then you 
tell me when I ask you that you have no opinion, that it is not 
your purview, that you don't even have an opinion. What is your 
personal opinion about when it is too high?
    Mr. Silberman. Congressman, I don't believe it would be 
appropriate for me to offer you my personal opinion.
    Mr. Pearce. You are the Deputy Director.
    Mr. Silberman. And so therefore, I am here to represent the 
Bureau.
    Mr. Pearce. Why did you put it in your testimony then?
    Mr. Silberman. Because we thought--that portion of the 
testimony was describing a report we issued. We are a data-
driven--
    Mr. Pearce. Why did you issue a report on something you 
have no interest in? You said it is not right for the agency to 
take a position on that, so why did you issue a report on it? 
It is obvious that you have an opinion about it as an agency.
    Mr. Silberman. Congressman, we did not issue a report about 
that. We issued a report about the practice of making 
unaffordable loans. As part of that report, we thought it was 
important to describe the facts as we understood them so we 
could--
    Mr. Pearce. Okay.
    Mr. Silberman. And that was one of many, many facts, but 
not what the subject of the report was.
    Mr. Pearce. But let me give you a contrast, sir. So let's 
say 15 percent is a higher rate of interest. You can go to a 
bank today and get a loan for 6 percent, 15 percent, you go in, 
you borrow $100 for a month, at a 15 percent rate of interest, 
which is $1.50 for the year, just roughly speaking. I know it 
would come out a little bit different. You divide that by 30 
days, and you get 75 cents.
    Now, I am asking you, would you loan $100 for a month for 
75 cents rate of return? And that is what you, the agency, are 
doing by putting numbers like this in reports. And you are 
going to an industry where I have two letters today that come 
from constituents who this past week walked into places where 
one says, I had a medical emergency, I have a disabled 
daughter. I just needed help to make it to the end of the 
month. And you are going to shut down 70 percent of these 
people, you. You, Mr. Silberman, are going to shut down 70 
percent of these people if you put this rule into place.
    Now, if the industry is so profitable, 391 percent to 521 
percent are your numbers, if it is that profitable, how come 
all institutions are not flocking into it? Do you as an agency 
consider that?
    Mr. Silberman. Congressman, actually that goes to the 
question you asked Ms. Treppa.
    Mr. Pearce. No, it does not. I am asking you. So, Mr. 
Silberman, you used to work for Kessler Financial.
    Mr. Silberman. I did indeed. Yes, sir.
    Mr. Pearce. And Mr. Kessler is one of the richest men in 
America by far in the 1 percent, $300 million net worth. Did 
you ever suggest that maybe he ought to get into this lucrative 
market that is down here and is ripping people off? This 
industry leader of Kessler could get into here and we could 
clean it up by ourselves by competitive advantage that we are 
offering. Did you ever once as executive vice president of that 
operation suggest that to Mr. Kessler that he might increase 
his rate of return by taking out these bad actors that you are 
trying to take out as an agency?
    Mr. Silberman. Mr. Kessler did not need my advice as to how 
to make more money.
    Chairman Neugebauer. The time of the gentleman--
    Mr. Pearce. But you, I would note, are avoiding the answer 
of whether you took a moral position at that company on whether 
or not you all were supporting an industry that does far more 
to the poor. Thank you. I yield back.
    Chairman Neugebauer. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, the 
ranking member of the subcommittee, Mr. Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. And this question is to 
Ms. Treppa. In March of 2015, Missouri Attorney General Rich 
Koster announced that eight online lenders acting through 
business entities operating from a Native American reservation 
in South Dakota could no longer operate in Missouri, finding 
that, ``These predatory lending businesses operated in the 
shadows, taking advantage of Missourians through outrageous 
fees and unlawful garnishments.''
    Given that a majority of tribal lenders' businesses occur 
off tribal land, could you elaborate on how you advertise and 
acquire customers like those in Missouri who were the subject 
of the AG's enforcement action, and specifically what marketing 
channels do tribal leaders utilize?
    Ms. Treppa. Certainly, Congressman. Thank you for the 
question. I can't speak to the specifics of that issue. 
However, we originate loans on tribal lands. They are accessed 
via the Internet by customers. We acquire customers online 
through various ways: search engine optimization; lead 
generation; and paper click, all of the standard access 
opportunities.
    Mr. Clay. Does your Tribe have its own tribal usury rate? 
And if so, what is your usury rate?
    Ms. Treppa. We don't have a usury rate, per se. The cost of 
the product is commensurate with the cost of customer 
acquisition, as well as the cost of underwriting and the cost 
to regulate.
    Mr. Clay. What would be a normal rate of short-term loans?
    Ms. Treppa. The rates for our installment loans--and they 
are not payday products--are dependent upon the customer's 
cycle to repay, whether it is semi-monthly or biweekly.
    Mr. Clay. So the longer it takes to repay, then the higher 
the interest rate?
    Ms. Treppa. Congressman, the installment loans are up to 10 
months. However, the majority of our customers pay it off 
within 4 months.
    Mr. Clay. What percentages goes into default of those 
loans? Do you have any idea?
    Ms. Treppa. Default rates are under 16 percent, typically. 
We have a high rate of satisfaction with our customers, 98 
percent. And as I mentioned, default rates are relatively low.
    Mr. Clay. Let me ask you, why do you think people come to 
companies like yours and others for these products, for the 
loans?
    Ms. Treppa. Because they have an immediate need, and there 
is a lack of supply in the market.
    Mr. Clay. So maybe a bank that they have a regular account 
with or a checking account would deny them outright and so they 
look for alternatives? Is that it?
    Ms. Treppa. Congressman, typically banks don't loan small 
dollar amounts. Our loans are $1,200 or less.
    Mr. Clay. You fill a niche, then, correct?
    Ms. Treppa. Sure. There is a need and we--
    Mr. Clay. People need the money, apparently.
    Ms. Treppa. --provide a badly needed product to our 
consumers.
    Mr. Clay. Would you not agree that State AGs like Attorney 
General Zoeller and my attorney general had the right to 
protect their own citizens from lenders in whatever way they 
see fit, including through State licensing requirements or 
State usury caps?
    Ms. Treppa. As I had mentioned earlier, the consumers 
access our product via the Internet. And the loans are 
originated on tribal lands. We have a robust internal 
compliance department, as well as a regulatory commission that 
oversees and licenses all of our lenders that operate on our 
tribal lands.
    Mr. Clay. Yes, but these are people from different States, 
too, correct?
    Ms. Treppa. Correct.
    Mr. Clay. Okay. I will wait for the next round. Thank you. 
I yield back.
    Chairman Neugebauer. I thank the gentleman. Now, the 
gentleman from Missouri, Mr. Luetkemeyer, the chairman of our 
Housing and Insurance Subcommittee, is recognized for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Zoeller, I certainly appreciate your, ``don't call us, 
we will call you'' attribute. I think that is what we all would 
hope that the people from the States would be having, because I 
think that is how we as a country should operate. We are not 
the country of America. We are the country of the United States 
of America, which means emphasis on ``States.'' We are all a 
group of States that are as one country. And therefore, the 
States have the ability to make these rules and regulations, 
and that needs to be allowed for you to continue. I certainly 
appreciate your testimony along those lines. To me, this is 
extremely important.
    Mr. Silberman, you made the comment a while ago that your 
job was to enforce the law. And then you turn around and make a 
rule and intend for that to be the law. It is very 
disconcerting to me to have that statement made and turn around 
and you by rule can change law and/or make law. That seems to 
be going on, on a regular basis in this Administration.
    Would you like to elaborate and give your position on it 
again?
    Mr. Silberman. Thank you, Congressman. Yes. The job of our 
Bureau, like many administrative agencies, is to particularize, 
if you will, laws that are passed by Congress. Congress defined 
``prohibited, unfair, deceptive, and abusive practices.''
    We think we have an obligation--we could go in, you are 
right, and just start enforcing that rule and suing people 
without giving them any notice that here is what we understand 
that to mean. We think that would be bad practice, so what we 
have tried to do is to do careful research and study--
    Mr. Luetkemeyer. Mr. Silberman, you are going through the 
rulemaking process here, but it certainly gives me pause--if 
you make this same rule the way you did others, you are not 
going to listen to what everybody says. I had a group of 
bankers one time come into my office and they told me that they 
had just left the CFPB. They were mad as the dickens. They 
said, you know what, we were told that we were the 42nd group 
that was talking to the CFPB over this issue of qualified 
mortgages.
    And they were told, we appreciate you being here, but you 
don't know anything about what you are talking about. Now, you 
have a lot of responses and going to get a lot of responses on 
this issue. I hope you consider all that very carefully, 
because those are the consumers that you are going to be 
hurting by what you are doing.
    Mr. Zoeller, quick question: You made the comment a little 
ago that you only had five complaints with regards to payday 
lending in your State?
    Mr. Zoeller. That is correct.
    Mr. Luetkemeyer. Is that correct?
    Mr. Zoeller. That was 2015's number.
    Mr. Luetkemeyer. How many transactions did you have over 
the course of that year? Do you know offhand?
    Mr. Zoeller. I am not part of the industry. I know it is a 
lot, though.
    Mr. Luetkemeyer. Thousands and thousands, no doubt.
    Mr. Zoeller. Yes, sure.
    Mr. Luetkemeyer. I can tell you from being a financial 
Services chairman back in Missouri, my good friend, Mr. Clay, I 
followed him in the legislature, and we put the model 
legislation in place for payday lending. And one of the jobs as 
chairman of the committee was to see once how it worked. And we 
actually had fewer complaints on our payday lending folks than 
we did with the banks themselves.
    Mr. Silberman, by your own admission, the CFPB's admission, 
and taking the statement from the chairman, 60 percent or 70 
percent of the payday loan folks are going out of business, 
which is going to restrict the ability to have access to credit 
for lots and lots of folks. What is your solution?
    Mr. Silberman. Thank you, Congressman. We have not said 
that 60 percent or 70 percent of companies--
    Mr. Luetkemeyer. Whoa, that is pretty well in print lots of 
places. Mr. Cordray has actually said that in this committee. 
In fact, I think in this committee, he made the statement of 80 
percent. But we will take 60 percent or 70 percent, and give 
you the benefit of the doubt.
    Mr. Silberman. If I can finish, Congressman, what we have 
said is not that. What we have said is that of the loans that 
are made today, 60 percent to 70 percent go to consumers who 
have received more than 6 loans in the course of a year, and 
that if nothing changed and if industry simply said what they 
are going to do is stop making loans after 6, that would mean 
60 percent or 70 percent of the loans would stop.
    We have also been very clear to say that is not at all what 
we expect to happen, that we expect to see changes, and in that 
regard, I would indicate that what we have said is actually no 
different than what the industry had said long before we issued 
our proposals.
    Mr. Luetkemeyer. I have one more quick question. I am about 
out of time here. I asked the question originally, what are you 
going to do about the alternative? What are people going to be 
able to do? I didn't get an answer.
    In the President's budget, he has a line item in there, in 
the community development financial institutions fund program 
account for $10 million. The program will support broad-based 
access to safe and affordable financial products and provide an 
alternative to predatory lending by encouraging CDFIs to 
establish and maintain small dollar loan programs, $10 million. 
So the President is going to set up his own payday lending 
business? Is that what is going on?
    Mr. Silberman. Well, Congressman--
    Mr. Luetkemeyer. Mr. Silberman, I realize we have left you 
speechless here. But the bottom line of this is, we have the 
Administration that is going to get in the payday lending 
business, and they know they can't make money at it, and they 
are going to subsidize it by $10 million. You know what? How 
about if we just go give them grants? Every time you need a set 
of new tires on your car, just go to the government to get a 
grant to get $500 to go get a new set of tires. Okay. How about 
if your kids need new braces? Go to the government and get a 
grant for $2,000. That is what you are talking about here. That 
is wrong. I yield back.
    Chairman Neugebauer. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Hinojosa, for 5 minutes.
    Mr. Hinojosa. Thank you, Chairman Neugebauer and Ranking 
Member Clay, for holding this hearing. I also want to thank our 
distinguished panelists for their appearance here today and for 
sharing their insights with us.
    Time and time again, we hear about hardworking families 
being exploited by predatory, small dollar, short-term lenders 
such as payday lenders. While these loans are meant to help 
unbanked and underbanked individuals in need of quick cash, far 
too many times the borrower ends up trapped in a vicious cycle 
of rollovers of fees and more debt.
    We sell our families short when we accept that high-
interest loans are the best we can do for our communities. 
Payday and auto title loans with uncapped annual percentage 
rates have long enticed families in moments of desperation, 
offering short-term fast cash at the cost of long-term debt at 
rates averaging $500 annual percentage rates.
    Let me share with you that in Texas, an average $500 payday 
loan costs an astounding $1,100 or more to repay in a period of 
just a few months. In Texas, payday and auto title loan 
businesses have the second highest number of consumer 
complaints by their regulator. In addition, payday and auto 
title lending is a top reason why scores of families end up at 
the doors of social services agencies in my State.
    Let me go to the first question. Mr. Silberman, can you 
tell us about what the CFPB research has found regarding the 
payday and auto title lending industry? What are the consumers 
being harmed by in this industry?
    Mr. Silberman. Thank you, Congressman. Our research which 
we have done over--as I indicated--a period of several years 
through several studies, field hearings and the like, confirms 
very much what you have indicated, that for a significant 
number of consumers, they enter into these loans and then find 
that they had a need, but when it comes due, they can't afford 
to make the payment.
    Some of them default and wind up in a collections 
experience, perhaps having their wages garnished. Some wind up 
in bankruptcy. But many wind up borrowing again, and then 2 
weeks later the same thing happens and they borrow again and 
again.
    The analogy that I found quite helpful is, the CFSA on 
their website talks about--analogizes to taxis and says that 
taxis are useful as a ride--if you are going a short distance, 
a taxi is a good way to get there. But if you are going on a 
long trip, taxis can be very expensive.
    And what our research really shows is that if you open the 
door to the taxi without assessing whether consumers have the 
ability to repay, consumers think they are taking a short ride 
and wind up taking a very long, long journey at great cost.
    Mr. Hinojosa. With response to that, listening to your 
answer, will the result from the Bureau's rulemaking allow 
consumers to continue to be able to borrow short-term loans?
    Mr. Silberman. Thank you. The result from the Bureau's 
rulemaking--and I should emphasize that right now, we have not 
yet even proposed a rule. We have outlined proposals under 
consideration. But our goal would be that consumers would have 
the opportunity to get affordable loans. Whether they are 
short-term loans or not, that is harder to say.
    One of the problems is that for folks who need these loans 
but can't actually repay them in the short-term, longer-term 
loans may be a better solution. But affordable loans are very 
much what we are trying to ensure will be available to 
consumers.
    Mr. Hinojosa. Tell me about the 5 percent option included 
in the proposed rule. Will it be included in the final rule?
    Mr. Silberman. Congressman, I can't answer that question at 
this time. I can't even answer the question of whether it will 
be in the proposed rule. We indicated that was one of the 
options we were considering as a streamlined way of enabling 
assessments of whether consumers have the ability to repay. But 
it would be premature for me to speculate what would be in the 
proposal or the final rule.
    Mr. Hinojosa. Thank you. Ms. Treppa, you note that your 
Tribe and others have developed lending businesses that have 
constructed strong regulatory frameworks. How often has your 
Tribe brought enforcement actions for unfair, deceptive, or 
fraudulent practices in connection with the transactions that 
do not occur on trust land?
    Ms. Treppa. Congressman, first, all of the transactions 
occur on trust land.
    Mr. Hinojosa. Okay.
    Ms. Treppa. Currently, we have a very robust internal 
compliance regime that ensures that consumers are protected and 
it is--to date, there have been no enforcement actions against 
the tribal lenders that we have licensed.
    Mr. Hinojosa. My time has run out. I yield back.
    Chairman Neugebauer. The time of the gentleman has expired. 
And the Chair now recognizes the gentleman from Colorado, Mr. 
Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. And I would like to 
ask unanimous consent to submit a letter from our AG, Cynthia 
Coffman, for the record.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Tipton. Thank you. Mr. Silberman, I would like to be 
able to follow up, frankly, on the chairman's question. When we 
were talking about what gap is to be filled, what need do we 
have to have your rules issued, I am not sure I heard an 
answer. What is the gap?
    Mr. Silberman. Thank you, Congressman. The gap is that--as 
I indicated, our research indicates that loans that are made 
without assessing a consumer's ability to repay wind up 
creating a great deal of harm for consumers. And we believe 
there is a need at this point for a Federal regulation which 
establishes that it is an unfair or abusive practice to make a 
loan of this type without regard to the consumer's ability to 
repay.
    Mr. Tipton. So you want to have fairness, but you aren't 
able to specifically point to anything; it is basically just to 
be able to write rules as filling the gap?
    Mr. Silberman. No, I think quite to the contrary we have 
pointed to a great deal of evidence in two reports and other 
studies to identify the harm that we are seeing, and so we 
think there is a need to establish a principle that--
    Mr. Tipton. Let's look at some of the solutions. You have 
held roundtables, forums with States, I think you had 
indicated, seeking it out. You are familiar with what has 
happened in Colorado?
    Mr. Silberman. Yes, sir.
    Mr. Tipton. They have done a good job.
    Mr. Silberman. Colorado has made a set of choices.
    Mr. Tipton. Is it good?
    Mr. Silberman. It is not appropriate--
    Mr. Tipton. Have they fulfilled those requirements you are 
talking about?
    Mr. Silberman. It would be quite inappropriate for us as a 
Federal agency to judge what States are good or bad.
    Mr. Tipton. Well, aren't you judging if you are going to 
start writing rules to preempt them?
    Mr. Silberman. We will--Congressman, the rules that we are 
considering proposing would not preempt what Colorado has done, 
or what any other State has done. It would add an additional 
requirement that--the requirement that the assessment be made 
of the consumer's ability to repay. So that Colorado has said, 
for example, that the minimum--
    Mr. Tipton. Effectively, we need the Federal Government to 
step in because Mr. Zoeller and Ms. Treppa don't care about the 
people who live in their States. Is that what you are telling 
us?
    Mr. Silberman. I am saying, Congressman, that we have an 
obligation to enforce Federal law. The Federal law provides 
consumers, all consumers in every State, with protections 
against unfair and abusive practices. And that is our role, to 
try and provide that protection which would sit as a floor on 
which States could add their own rules, like the rules that 
Colorado has added.
    Mr. Tipton. Like the rules that Colorado has added. Now I 
would like to be able to cite our attorney general, Cynthia 
Coffman, in regards to the rules that you want to be able to 
put forward. She states in her letter to you, ``Colorado's 
extensive experience with these types of measures tells us that 
such proposals--your proposals--will not work in the real 
world, if the intent is to preserve access to credit.''
    That is feedback from the States. That is what they are 
telling you. You are overreaching. You are overregulating. You 
are overpromising. But the States are the ones that are 
actually performing.
    Mr. Zoeller, I would like to be able to go and visit with 
you just a little bit in terms of what you are seeing out of 
the State of Indiana. In your own experience, do you think that 
the CFPB, their proposal requires significant changes and that 
they are going to have a chance of really succeeding for the 
State of Indiana?
    Mr. Zoeller. Quite frankly, we do have a focus on 
consumer's ability to pay. And we have kind of a monthly income 
as the basis of that. So we may not be as, let's say, may not 
have as much impact.
    We do a lot better job than other States, so I defend our 
State every day. I will say we have stronger consumer laws and 
some of the space might be better regulated in Indiana, but we 
are still willing to look and see if we can do it better and--
    Mr. Tipton. Since you are here--I would love to have our 
attorney general here--tell me, has the CFPB reached out and 
asked for your advice?
    Mr. Zoeller. We have submitted letters. And they did have a 
field hearing in Indianapolis on auto loans. But I would say 
not enough. We really wanted to have much more of a dialogue on 
what areas in which we are lacking. And I think the chairman's 
point and other points about where is the gap in coverage is 
what is missing.
    And, again, if there are gaps where we don't have 
authority, we may need some help, but quite frankly, in Indiana 
we don't.
    Mr. Tipton. They haven't really had a dialogue with you, as 
they have indicated that they said they did. I would be 
interested to know, have they used your personal expertise or 
data concerning small dollar loans in their proposals?
    Mr. Zoeller. I can't say whether they modeled theirs after 
mine. Our legislature did have similar hearings, though, and 
talked about these same areas, and came up with a focus on 
consumer's ability to pay. But, again, that was our choice, the 
legislatures that are elected to make those policies. I will 
always just defend their decisions.
    Chairman Neugebauer. The time of the gentleman has expired. 
The Chair now recognizes the gentlewoman from New York, Mrs. 
Maloney, for 5 minutes.
    Mrs. Maloney. I thank the gentleman for yielding. I would 
like to thank all of the panelists for their testimony.
    Before I ask my questions, I would like to yield as much 
time as Mr. Silberman would like in order to finish some of the 
questions. Regrettably, we are under a 5-minutes rule, and I 
have noticed that many times you have been cut off because the 
time is just not sufficient.
    I do understand you have quite considerable experience and 
research in this area, and if there were some points that you 
were cut off and you could not make, or some statements you 
would like to make about your research, I would like to yield 
you as much time as you would like to consume of my 5 minutes.
    Mr. Silberman. Well, thank you very much, Congresswoman.
    I really think there are three or four points I just wanted 
to make sure I have made as clearly as I can. The first is that 
the Bureau has been engaged in a very thoughtful, extensive, 
data-driven research effort with respect to this product. We 
have held three field hearings. We have done two research 
reports. We have had extensive outreach. We have read--I think 
it is safe to say--the entire academic literature that exists. 
We have met with scholars in order to come to the place that we 
are.
    Second, as I hope I have made clear, what all that has told 
us is that if you make a loan like this without assessing a 
consumer's ability to repay, consumers are put in harm's way, 
and many consumers wind up in dire situations.
    As a result, what we think is needed is a very simple 
principle, which is really a principle that is pretty well 
settled and standard practice in most lending industries, that 
before you make a loan, you should assess whether the consumer 
has the ability to repay that loan. That is standard practice.
    And I would like to just point out that a couple of years 
ago, 2\1/2\ years ago, I had the privilege of testifying on the 
Senate side, and with me that day was Dennis Shaul, the CEO of 
the CFSA, the trade association for the payday lending 
industry. And Mr. Shaul said at that time something with which 
I profoundly agree. He said that based on his conversations, 
his members recognize that payday loans as we know them are not 
likely to survive another 5 years. And that is a quote. And he 
also said that, ``what we need to do is a different and better 
form of underwriting so we can catch people much earlier who 
might end up in a cycle of indebtedness.''
    That is a quote. And that is really the heart of what we 
are trying to do here. And the final point I would make, 
Congresswoman, is that we are still in an early stage of this 
process, not the early stage for research, but the early stage 
of the rulemaking process.
    We have put a proposal--an outline of proposals out for 
consideration. We spent the last 10 or 11 months listening to 
feedback. We will put forward a proposal, and that will start 
another round of communication, and we will take all that into 
account in finalizing whatever rule we finalize.
    Mrs. Maloney. Thank you. I quite frankly found the research 
from the Bureau absolutely staggering. One out of every five 
consumers who takes out a short-term payday loan ends up being 
in debt for an entire year. I would hardly call that a short-
term loan.
    But the most interesting finding to me was that only 35 
percent of payday borrowers were able to repay the loan when it 
was due without reborrowing. And I want to ask, is that roughly 
the percentage of payday borrowers who would be able to borrow 
under the Bureau's proposed ability-to-repay standard? And has 
the Bureau to your knowledge done any analysis of what 
percentage of current payday loans would likely be prohibited 
under the ability-to-repay standard?
    Mr. Silberman. Congresswoman, I think that is somewhat 
difficult to do, because the lenders today are not getting the 
information, because they are making loans without regard to 
ability to repay. It is hard for anyone to know what they would 
decide if they actually asked that question.
    So the fact that 30 percent of the people are able to 
repay, certainly that would suggest that those people are able 
to pay. There are also alternatives, such as the kinds of 
products that Chair Treppa was talking about, which have a 
longer term, which would allow more people to be able to repay.
    Mrs. Maloney. Your research basically focused on what you 
called debt traps, which are currently the most abusive 
practices. But it does not really focus on other practices that 
might be termed abusive that may not rise to the level of a 
debt trap.
    What is your response to the argument that some people have 
made that you put too much emphasis on focus on the debt trap 
as opposed to other traps that are out there that might be 
causing problems to consumers?
    And I for one feel that to catch someone in a neverending 
circle of debt is one of the most painful things I have ever 
seen in a person's life. And anything we can do to help them 
avoid that, I feel is important to quality of life and really 
economic strength of people in our communities.
    Chairman Neugebauer. The time of the gentlewoman has 
expired. The Chair now recognizes the gentlewoman from Utah, 
Mrs. Love, for 5 minutes.
    Mrs. Love. Thank you. I just have a few questions. Mr. 
Silberman, to what extent did the Bureau analyze the regulation 
of short-term credit products in the States before designing 
its own plan or rules to regulate these small dollar products 
at a Federal level?
    Mr. Silberman. Congresswoman, we have reviewed, I think, 
the laws of all of the States and understand what those States 
provide. As I have indicated, our obligation, of course, is to 
assess what is required to implement Federal law, but we 
certainly are aware of what the State laws provide.
    Mrs. Love. Okay. So what was it about your analysis of 
State law that made the Bureau think that State legislators and 
regulators like those in my home State of Utah were doing a bad 
job of protecting Utah residents?
    Mr. Silberman. What our analysis has told us is that there 
is a problem, that there are a large number of consumers who 
are getting loans that they cannot afford to repay, and that is 
leading to harm, and that there is a need--it is appropriate 
and indeed necessary to implement Federal law which we are 
obligated to enforce to make clear that--
    Mrs. Love. So you did actually look at Utah State laws also 
and you found problems in our State, also?
    Mr. Silberman. We have found a problem in the market. We 
are trying to address the problem in the market by implementing 
the Federal law that prohibits unfair and abusive and deceptive 
acts and practices.
    Mrs. Love. Okay. So it is my understanding that the CFPB's 
rulemaking would eliminate some of the commonsense Utah laws 
and that the Federal law would likely eliminate these important 
short-term credit options for my constituents. Is that--
    Mr. Silberman. The rule that is under consideration--and, 
again, this is just an outline of proposals, not a proposed 
rule--would not eliminate any State law, including a law of 
Utah. We also do not believe it would drive lenders out of 
business. It would create a level playing field in which 
affordable loans could be made.
    Mrs. Love. Okay. I believe that you are only telling--and I 
think that everyone else here can sense it--part of the story. 
You are telling one side of the story and you are not telling 
the other side of the story.
    For instance, a young, hardworking, single mom comes home 
from work--and this is a true story--late at night to find out 
that her babysitter ran out of formula for her daughter 3 hours 
ago. She uses her last resort option, goes to her payday loan 
place, goes to the store, and buys formula for her daughter. 
What would you suggest that she do? Knock on everybody's door? 
What would you suggest that she do? Because there are other 
actors that have used this as a last resort and it has worked 
for them.
    And I'm sorry, but I find it offensive that you would say 
that people aren't smart enough to make decisions for 
themselves. And so you have to go into States, you have to go 
into cities, you have to go into all of these other places to 
say, trust Washington. We know what is best for you. Trust 
Washington to make the decisions for you. We know what is best. 
Don't worry. Your States aren't doing a great job. They don't 
understand what your needs are. We understand more than anybody 
else. Have you ever been to Saratoga Springs? Do you know where 
that is, in Utah?
    Mr. Silberman. Oh, no, I'm sorry. I have been to Saratoga 
Springs in New York, but not in Utah.
    Mrs. Love. Okay, in New York. Well, have you ever been to 
Utah?
    Mr. Silberman. Yes.
    Mrs. Love. Yes? Skiing?
    Mr. Silberman. No, ma'am.
    Mrs. Love. No, just visiting? Do you know the people in my 
districts? Do you know the people who actually use it who have 
said, thank goodness it was there as a last resort?
    Mr. Silberman. We have had the opportunity during the 
course of our work to hear from many consumers who use these 
products.
    Mrs. Love. Have you heard--okay, let me ask you this 
question. How many people have you heard from who actually have 
used these products and said they have worked for us, it has 
gotten us out of a terrible situation, thank goodness it was 
there?
    Mr. Silberman. I'm sorry. I don't know the number offhand.
    Mrs. Love. You have met with some, right? But I have yet to 
hear you talk about their stories.
    Mr. Silberman. Congresswoman, I think we did indicate from 
our research which was confirmed by our experiences that there 
are 30 percent of the people for whom this product works 
exactly as it was intended, and it enables them to bridge 
emergency and to get to--and they have the ability to repay.
    It is the other two-thirds who don't have the ability to 
repay for whom we want to create a market in which there are 
options for them so they don't have to take out the loan and 
then 2 weeks later find they have to take out another loan 
because they don't have the money to repay the first loan.
    Mrs. Love. Okay, so I am going to--I am running out of 
time. But this is a fair question to ask. And maybe you could 
just keep it in the back of your head. But is the CFPB doing 
anything to make sure that consumers of these small dollar 
credit products have the option at credit unions or community 
banks to be able to have some of these options, also? Or is it 
just rulemaking?
    Mr. Silberman. Mr. Chairman, may I answer the question? I 
see that time is up.
    Chairman Neugebauer. Yes, the time of the gentlewoman is--
    Mrs. Love. Yes or no? I just need a yes or no.
    Mr. Silberman. Yes.
    Mrs. Love. Yes? Okay.
    Chairman Neugebauer. Okay, thank you. The Chair now 
recognizes the gentleman from Washington, Mr. Heck, for 5 
minutes.
    Mr. Heck. Thank you, Mr. Chairman. I would like to direct a 
couple of questions as time allows to Deputy Director 
Silberman. I noted that last week your boss gave an interview 
in The Wall Street Journal in which he indicated that he would 
encourage credits and credit unions to make short-term loans. I 
know that NCUA has some longstanding experience actually 
setting rules for encouraging payday advance loans and on the 
banking side, FDIC and OCC, another product, deposit advance 
product.
    What I am actually interested in is understanding a little 
bit about your conversations at the Bureau with other 
regulators, what you think of their rules, and what changes, if 
any, you contemplate to how it is they have structured their 
approach and yours?
    Mr. Silberman. Thank you, Congressman. And you are 
absolutely right that the National Credit Union Administration 
(NCUA) has adopted provisions for what they call a payday 
alternative loan to enable credit unions to make a loan that 
they think works. The evidence is that a significant number of 
credit unions are taking advantage of that. In the outlines of 
the proposals under consideration, we indicated that we would 
allow that to continue as essentially an exception to the 
general rule.
    Mr. Heck. So you would not preempt their approach?
    Mr. Silberman. Correct. We have--as you indicated, Director 
Cordray--we believe that there is an opportunity here for 
community banks and credit unions who know their customers, 
don't have the same kinds of expenses that others might have to 
provide safe, affordable products to their customers and that 
we are encouraging them--
    Mr. Heck. Excuse me, Deputy Director. I apologize for 
interrupting. But I want to get to the banking side of that 
question, too, because I think the experience has been a little 
bit different or the perception in the industry has been a 
little different than it is on the credit union side. Could you 
answer the question for them, as well? Or did you mean for it 
to cover both NCUA and the other regulators?
    Mr. Silberman. The proposals that we indicated we are 
considering would allow any institution, a depository or non-
depository, a credit union or a bank, to take advantage, to 
make payday alternative loans within the parameters of their 
regulation.
    Mr. Heck. And your proposed rule will be explicit in that 
regard?
    Mr. Silberman. I don't want to speculate on what our 
proposed rule will do. I can say that is what the outline of 
proposals under consideration says.
    Mr. Heck. Secondly, probably lastly, it is my belief that 
we have a lot of legal products out there that are well used by 
the vast majority of the population in some instances. But on 
occasion, there can be a small slice or a slice--I don't want 
to get into splitting hairs here--whom for whatever 
circumstances have not used that product well, whether it is 
their fault or anybody else's fault.
    But we have this approach to regulation. You can have a 
casino, but we have 1-800-BETS-OFF. You can have a bar, but you 
can't serve somebody if they are clearly inebriated. In some 
States--Colorado, Washington--you can have a marijuana 
dispensary, but we have a lot of restrictions on how you can 
engage in that industry.
    And I don't know if this is a fair analogy. I am interested 
in your response. Are short-term small dollar loans a fair 
analogy where you have some percent of the population for whom 
that becomes a problematic usage? And if so, what have we 
learned from those other industries where we have mechanisms 
for intervening and helping and the like?
    Mr. Silberman. Congressman, the distinction I would draw is 
that the first question we want to ask is whether that product 
is safe for its intended use. What our research indicates here 
is that we have a product that is really not safe for its 
intended use. It is not simply a handful of people abusing the 
product, and that we have to deal with that as that kind of 
problem. It is really we have a product that when this product 
is made without assessing ability to repay, it is not safe for 
its intended use. And that raises a very different kind of 
problem for lawmakers and regulators.
    Mr. Heck. Very good. Thank you very much, sir. I yield back 
the balance of my time.
    Chairman Neugebauer. I thank the gentleman. And now, the 
Chair recognizes the small businessman from Texas, Mr. 
Williams, for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman.
    Mr. Silberman, in full disclosure, you need to know that I 
am a car dealer. So you know how I feel about you and your 
agency, okay?
    Mr. Silberman. I remember from the last time I was here, 
Congressman.
    Mr. Williams. Let's move on, all right? First of all, you 
keep saying that you have done careful work, but if I heard you 
correctly when you talked to the chairman earlier, you have 
never visited a store. Now, how can you claim to understand the 
market or a business if you have never visited it before?
    Mr. Silberman. Congressman--
    Mr. Williams. Make it short, because I have other 
questions.
    Mr. Silberman. I have met with many store operators. My 
staff has visited many, many stores. We as a Bureau had a 
consumer advisory board meeting last summer where the entire 
consumer advisory board, including the Director--
    Mr. Williams. You went on a field trip.
    Mr. Silberman. --went to visit a store.
    Mr. Williams. I did that in the sixth grade. Now, I get it. 
Okay. The other thing is, you talked about how scholars have 
helped you make these decisions. What the heck is a scholar on 
payday lending? Who is that person?
    Mr. Silberman. There are--
    Mr. Williams. Someone like you who has never been there?
    Mr. Silberman. There are many economists who have studied 
this industry, some funded by industry to do research, some 
funded by consumer advocates to do research, some independent. 
We have read all of their research.
    Mr. Williams. I got it. Okay. Let me move on. Section 1022 
of the Dodd-Frank Act under standards for rulemaking reads, 
``The Bureau shall consider the potential benefits and costs to 
consumers and covered persons, including the potential 
reduction of access by consumers to consumer financial products 
or services resulting from such a rule.'' And, in fact, Mr. 
Silberman, the Bureau has explicit authority under 1022 to 
exempt any class of covered persons, service providers or 
consumer financial products or services from the requirements 
if statutes are implementing regulations that you are 
implementing, okay?
    In fact, I must tell you, I am proud that, along with those 
two, I have offered legislation last year that would have 
helped strengthen that exemption. So my question is 
straightforward. Do you believe the CFPB has used Section 1022 
exemption adequately?
    Mr. Silberman. Yes, sir.
    Mr. Williams. Okay. Has the CFPB taken into account the 
impact of all these new regulations have on financial 
institutions like community banks, credit unions, and auto 
dealers?
    Mr. Silberman. Yes, sir.
    Mr. Williams. Okay. What about studies that show how these 
rules like the upcoming payday rule, how they affect the 
service these institutions are able to give their customers? 
Have you looked at those studies and seen that customers--the 
very people you are trying to save--you are hurting them? Do 
you understand that?
    Mr. Silberman. Congressman, we have carefully evaluated the 
practices in the industry, the effects on consumers, what 
happens to consumers when you make loans without assessing 
whether they are affordable, without assessing their ability to 
repay, and done our best to project the consequences of the 
proposals that we are considering. We continue to receive 
feedback and think about that and refine our thinking based on 
what we are learning.
    Mr. Williams. Okay, question to you. Do you--you and the 
Bureau--know better than the individual people making the 
loans? Are you just smarter than they are?
    Mr. Silberman. Congressman, we believe that the people 
making the loans have the capacity and should exercise the 
capacity to assess whether the consumers have the ability to 
repay those loans.
    Mr. Williams. Okay, but are you just smarter than they are?
    Mr. Silberman. No, not--as I say, we are trying to--
    Mr. Williams. You are advising them?
    Mr. Silberman. We are--actually, I would say--obligating 
them to--before making a loan to assess whether the consumer 
has the ability to repay. We have complete confidence that is 
something that can be done efficiently, effectively, and will 
produce a better world for consumers.
    Mr. Williams. You will help make a better deal for them?
    Mr. Silberman. We are not, as I have indicated, trying to 
affect the price of the product.
    Mr. Williams. Let me just say this to you. I am a business 
guy. And let me tell you, government--I am telling you, 
government doesn't create a good deal like you think you are 
helping your customer. It just doesn't happen. Do you know what 
makes a good deal? It is competition. It is reputation. It is 
the private sector that makes the deal.
    And the strength of the economy and the ability to realize 
that we all talk about the American Dream--it is not delivered 
by you, okay? It is delivered by the people that you actually 
are hurting. You know, I would tell them, trust the people. 
Trust yourself. Don't trust the Bureau. Don't trust the 
government. You see?
    All I am saying to you is, I can tell you, because I am 
living this dream 24/7 in my industry, it would be great if you 
would back off a little bit and realize that consumers actually 
know better and the private sector can create the competition, 
create the reputation that will fix these problems without you 
all even being involved.
    I yield back, Mr. Chairman. Thank you.
    Chairman Neugebauer. I thank the gentleman. And now the 
Chair recognizes the gentleman from Georgia, Mr. Scott, for 5 
minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Silberman, I am having a bit of trouble understanding 
why you are trying to destroy small dollar loans. They are much 
needed. We have 75 percent of the American people who live 
paycheck-to-paycheck. Americans have emergencies. They have a 
need for being able to acquire money to fix those emergencies. 
We have 62 million unbanked and underbanked Americans who do 
not use the traditional banking system.
    These small loans are highly transparent. They require 
heavy disclosures and compliance with Federal law. They have 
all received positive feedback from our borrowers. They are 
monitored by the bank first to determine whether they have 
sufficient regular cash flow to repay the loan. They have 
built-in controls to limit the use of the loan. They even have 
a cooling off period so that customers and consumers do not 
become overly reliant.
    The banks provide clear disclosure of the products. They 
limit the size of the loan to ensure that the consumer can 
repay that loan and that they don't get into a cycle of debt. 
They provide consumers with access to short-term credit, all 
positive things that are controlled.
    Yet, you and the OCC and the FDIC appear to be trying to 
kill these loans, leaving the consumers with less choice and 
more expensive options, because without access to these short-
term, small dollar loans, it creates a number of consumers who 
will be pushed out from access.
    I have to ask you, with all of this, why? Why are you and 
other regulators, trying to make it even harder for consumers 
to make ends meet, to deal with some of these emergencies, by 
effectively regulating out of business those small dollar 
loans? Why are you doing that to the American people?
    Mr. Silberman. Thank you, Congressman. We are not doing 
that. What we are trying to do is to make sure that the loans 
that consumers get are affordable loans, that this is a loan 
that somebody can repay and still meet their other obligations, 
continue to put food on the table, continue to pay their 
medical expenses, and not having to continue to borrow and 
reborrow and reborrow, because that is what our research tells 
us is happening today, that a large percentage of consumers who 
take out these loans--and it is not surprising, if you need 
this loan, that 2 weeks later, you are not going to be able to 
repay and walk away.
    We are trying to ensure that consumers can get loans that 
they can afford to repay, and not wind up either in the hands 
of debt collectors or in the spiral of continuing indebtedness.
    Mr. Scott. Why are you making the rules or regulations so 
complex, so complicated? See, the whole point is that, why not 
make it more convenient? Why are we getting all of this push-
back that you are trying to deny Americans from these small 
loans and that you are doing it by very skillfully putting 
forward very complex, hard-to-understand, complicated 
understandings of the rules?
    My whole point, Mr. Silberman, is that we as a government 
oftentimes tend to overextend our efforts in regulation and we 
wind up hurting the very people who need the help the most. Can 
you see some room here where you may need to--with all of these 
complaints, with all of these concerns that we are raising 
here--that maybe, Mr. Silberman, the CFPB stands back, takes a 
look, and says, well, no, like you told me, you are not wanting 
to kill them and put it out of business and stop the American 
people from doing it, but unfortunately this is the results 
that is happening. And too many people feel like this, that 
maybe we can move to address this issue.
    Are you willing to do that?
    Mr. Silberman. Mr. Chairman, may I briefly respond?
    Chairman Neugebauer. Briefly.
    Mr. Silberman. We have spent the last 11 months since we 
put our outlines, our proposals under consideration listening 
to precisely those concerns, and we are continuing to think 
about how to best balance achieving our objectives in a way 
that is cost-effective and that achieves the maximum good.
    Mr. Scott. Thank you, sir.
    Chairman Neugebauer. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from New Hampshire, Mr. 
Guinta, for 5 minutes.
    Mr. Guinta. Thank you, Chairman Neugebauer, and I also want 
to thank the panel for being here today.
    I would like to ask a few questions on the impending 
rulemaking for payday vehicle title and similar loans. I am 
concerned because as outlined by the Bureau in March of just 
last year, 2015, there was an acknowledgement that this 
rulemaking would reduce revenue by up to 70 percent of these 
short-term, small dollar, community-based credit providers, and 
potentially even put them out of business.
    As we know from the FDIC, 51 million people in our country 
are either underbanked or have no banking options at all. That 
is roughly 7 percent of American households who rely on a 
short-term, small dollar, community-based product to meet their 
day-to-day, week-to-week, and month-to-month needs.
    My question I guess is, how would a hardworking American 
family manage their money if they don't belong to an 
institution, if they don't have access to a credit union or 
community-based bank or larger institution? They rely on 
products that short-term lenders offer. So that can essentially 
help them meet their weekly or daily or monthly obligations and 
hopefully get them in a place where they have greater self-
sufficiency.
    Pew Charitable Trust recognizes in its research that these 
products--on these products, most borrowers that leverage these 
short-term credit products do so because they have no 
alternative. And that is I think the crux of the issue here. 
There is no alternative for them.
    As I understand it, this rulemaking would restrict millions 
of Americans' access to the credit on which they rely. I want 
to ask Mr. Silberman, you started out your testimony and you 
said the Dodd-Frank Act gives the CFPB plenary authority--you 
used the term ``plenary authority.'' Plenary means absolute, 
complete, unlimited authority.
    So my question to you is, in Dodd-Frank Title 10, Section 
1011, it states that the Bureau exists to ensure that all 
consumers have access to credit and financial products. I would 
like to follow up on Mr. Pearce's line of questioning. Can you 
explain to me on what basis is the CFPB justified and empowered 
to take steps that are clearly designed to eliminate the access 
to credit that we are talking about?
    Mr. Silberman. Thank you for your question, Congressman. 
Section 1011 of Dodd-Frank, to which you referred, says that 
the Bureau's goals are to ensure that consumers have access to 
financial products and services and that the markets for those 
services are fair, transparent, and competitive. That is a goal 
of the Bureau to ensure that these markets are fair. Section 
1031 states that we have the authority to identify and prevent 
unfair, deceptive, and abusive acts and practices.
    We are considering exercising that authority based on the 
research that we have done as provided for in Section 1022, 
which has identified a market failure, if you will, a problem 
in which consumers are getting loans that they cannot afford to 
repay.
    Mr. Guinta. Okay, so how does that line up with Title 10, 
Section 1027, which--and I have it here--says no authority to 
impose usury limit. And I will read it very quickly: ``No 
provision of this title shall be construed as conferring 
authority on the Bureau to establish a usury limit applicable 
to any extension of credit offered or made by a covered person 
to a consumer.''
    That would suggest that you can't set an APR limit, yet 
that is exactly what this rule establishes. But right here, it 
says you can't do it.
    Mr. Silberman. Congressman, with all due respect, the 
outline under consideration does not establish a limit. We 
agree completely that we cannot do so. We have not proposed 
doing so. We have not contemplated doing so. We will not do so.
    Mr. Guinta. Repeat that. You will not do what?
    Mr. Silberman. We will not establish a usury cap, an 
interest rate limit for these or any other lending products.
    Mr. Guinta. You are not looking to establish a 36 percent 
APR?
    Mr. Silberman. No, sir.
    Mr. Guinta. And you are saying that the CFPB will not under 
any circumstances move to establish that?
    Mr. Silberman. Correct.
    Mr. Guinta. Okay. So despite that, I appreciate that, and I 
hope that you will hear that, because the concern here is that 
very issue, that the rule exactly does that. And let's assume 
for the sake of the argument that does happen. Where do people 
who are underbanked or are not banked at all, what is their 
alternative for banking and financial stability?
    Mr. Silberman. Mr. Chairman, may I answer? I see--
    Chairman Neugebauer. Briefly.
    Mr. Silberman. Congressman, the products we are talking 
about are actually only available to people who are banked. And 
the goal of this rule is to ensure that there are affordable 
products available to them, rather than products--
    Mr. Guinta. All right, I appreciate that. But 51 million 
people are utilizing this who are underbanked or have no 
banking ability whatsoever. And I yield back the balance of my 
time.
    Chairman Neugebauer. I thank the gentleman. And the Chair 
now recognizes the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member and the witnesses for appearing today.
    I find it quite interesting to say the very least that when 
we enacted laws in 2007 with reference to our military, the 
payday lenders were concerned. The argument was that you can't 
cap interest rates at 36 percent. People can think for 
themselves. They ought to be able to borrow money at whatever 
rate we would like to charge.
    But Congress decided otherwise. We capped the interest rate 
for loans to military personnel and their families--2007--
people said, payday lenders, we are going to go out of 
business. You are going to run out of business. If you do this, 
we won't be able to make loans, and we will go out of business. 
Congress thought otherwise, apparently. We passed the law that 
limits what payday lenders can do.
    As a matter of fact, there were people who were saying that 
you can't pass laws that prohibit us from using the car title 
as some sort of collateral. People can do whatever they want 
with their property. It is their car. It is their title. Let 
them do what they may. Why would you do this, Congress? You 
can't do it.
    Congress thought otherwise. Congress did it. You can't do 
to a serviceperson what you can do to that mom whose child 
needs milk. You can't do it, Mr. Attorney General, and you know 
it. Am I correct? Could you speak a little louder, please? This 
has to be on the record.
    Mr. Zoeller. That is right. For military personnel.
    Mr. Green. Yes, for military personnel. You can't do it. 
Military personnel, they are good people. I support them. I 
fight for them. I don't think we ought to send them into war 
and spend billions of dollars and then when they come back home 
we have to find money to make sure that they get good health 
care or find money to make sure that they get proper housing. I 
think that if we can spend billions to put them into war, 
trillions literally, we can spend that on when they come back.
    But I have friends who want to find other places to cut so 
that we can help them when they come home. I support the 
military. But I also support people who live in the streets of 
life who find themselves in need of money and find themselves 
being taken advantage of. If they are not loan sharks, they are 
putting a lot of loan sharks out of business, payday lenders.
    You are in here. I know you are. I know you are listening. 
Someone talked about the moral hazard associated with some of 
the things that we would do to regulate. Where was the moral 
hazard argument when we did this for our military? Are these 
folks who are being taken advantage of with these loans that 
roll over and over and over and over again, paying these 
extremely high rates, are they not decent red-blooded 
Americans, too? Do they not deserve the same kind of 
legislation from this Congress that we did for the military?
    No, I don't think the CFPB has to do it. We have the 
responsibility to do it. And we are not. I don't think the CFPB 
is engaged in making laws. They make rules to enforce existing 
laws. Is that a fair statement, sir, Mr. Silberman?
    Mr. Silberman. Yes, sir.
    Mr. Green. Thank you. So now, let's just be real, as we say 
back in my neck of the hood. Let's just be real. Here is what 
is going on. You have people on this side who want to protect 
the consumer. And you have--not everybody, but a lot of people 
on the other side who want to protect payday lenders. And by 
the way, they are doing a pretty good job of it.
    Payday lenders can and should be regulated. It really is 
that simple. If we can do it for the military--good, loyal, 
red-blooded Americans--we can do it for other good, loyal, red-
blooded Americans.
    I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentleman. The Chair 
recognizes the gentleman from Kentucky, Mr. Barr, for 5 
minutes.
    Mr. Barr. Thank you, Mr. Chairman. And I appreciate my 
colleague talking about the need to regulate small dollar, 
short-term lenders.
    In my congressional district, at least, I know that many of 
these lenders are regulated under Federal law by the Bank 
Secrecy Act, the Electronic Funds Transfer Act, the Equal 
Credit Opportunity Act, the Fair Credit Reporting Act, the 
Gramm-Leach-Bliley Act, the Truth in Lending Act, the Fair and 
Accurate Credit Transaction Act, the Electronic Signatures in 
Global and National Commerce Act, the Servicemember Civil 
Relief Act, and the registration requirement for money service 
businesses with FinCEN.
    In 2010, in Kentucky, our split legislature--Democrat and 
Republican--bipartisan, working together, in conjunction with a 
Democratic governor, modernized a consumer lending law, and 
that was in 2010. The result was the following. A regulation 
that required a license, limits on rollovers, disclosure 
requirements, a bond requirement, financial requirements for 
licensing, capped fees, limits on advanced terms, a maximum 
loan amount, exam and audit requirements by the Office of 
Financial Institutions, headed by a regulator appointed by the 
Democratic governor, Commissioner Charles Weis, who I know who 
is a very excellent regulator. Limits on--no, allowance for 
fines against lenders, a prohibition on lender prosecution of 
customers, and finally, a requirement of background checks and 
industry experience requirements for those lenders.
    Those are the requirements at minimum that apply to these 
entities in my district. So my question to Mr. Silberman is 
this: What about these statutes, Federal and State 
requirements, are inadequate to protect consumers?
    Mr. Silberman. Thank you, Congressman. These statutes--all 
the provisions you cited would continue to be in full force and 
effect in protecting consumers in your district if the 
proposals under consideration were finalized. What we would do 
is add one more requirement, along the lines of what I 
indicated and Mr. Shaul said we need to do. We need to ensure 
that in addition, an assessment is made as to whether consumers 
have the ability to repay the loan.
    Mr. Barr. Yes. And do you not believe that the regulators 
in Kentucky, Commissioner Weis, is he unable to do that under 
the Kentucky law? Have you analyzed the Kentucky law? And was 
there anything wrong with the process of a bipartisan general 
assembly with a Democratic governor passing an update to the 
consumer protection laws in Kentucky?
    Mr. Silberman. I spent last week with Commissioner Weis 
when we had our field hearing in Louisville on a different 
subject, and I am sure he is entirely capable of enforcing 
Kentucky law. We are not talking about enforcing--we are 
establishing an additional requirement--
    Mr. Barr. Right, so I understand, what justifies the 
Federal Bureau canceling the collective judgment of Kentucky 
legislators, a governor, and a regulator in Kentucky?
    Mr. Silberman. Again, Congressman, we are not canceling 
that judgment. We are saying that as a matter of a Federal law, 
there is an additional requirement--
    Mr. Barr. I'm sorry, Mr. Silberman. You are a Harvard Law 
graduate. You understand the concept of conflict preemption. 
You are canceling the collective judgment of the general 
assembly of Kentucky.
    Mr. Silberman. No, Congressman. What I learned in law 
school is that we are not doing that at all. If we were to say, 
for example, that Kentucky cannot require the disclosures that 
they now require, that would be preempting and canceling. We 
are not doing that. We are saying there is an additional 
requirement in addition to--
    Mr. Barr. Right. And to the extent--
    Mr. Silberman. And that is--that is part of--
    Mr. Barr. --the general assembly has passed a law that is 
inconsistent with that, it is conflict preemption. Let me move 
on very quickly to the SBREFA process. A constituent of mine 
felt that their input was completely disregarded in the course 
of the SBREFA process and that your regulators failed to 
demonstrate a comprehension of the current very stringent State 
regulator structure. That constituent wrote you a joint letter 
and asked--with consent, I would like to submit this letter to 
the record--my question--
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Barr. --to you, Mr. Silberman, is how significant of 
the input from the SBREFA process has been included in the 
rulemaking process? Because based on a FOIA-produced record, it 
indicates that all of the small business feedback as required 
by law was completely dismissed out of hand in formulating your 
rule.
    Mr. Silberman. Congressman, we are carefully considering 
the feedback we received through the SBREFA process. I have 
read many of the submissions. I attended much of the hearing. 
Our staff has carefully digested it. That is a valuable input 
into our decision-making process. Anybody who says that we have 
not considered that cannot make that statement because we have 
been spending 11 months deliberating since that process, so no 
one has any basis to say that we are not considering it. We are 
doing precisely that.
    Mr. Barr. It would be very disappointing if this was just 
checking the box and that their feedback was not incorporated 
into the final rulemaking.
    Thank you. I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentleman. Now, the 
gentleman from Minnesota, Mr. Ellison, is recognized for 5 
minutes.
    Mr. Ellison. Thank you, Mr. Chairman, and Mr. Ranking 
Member.
    We all know that competitive markets by their very nature 
spawn deception and trickery. I am not quoting Bernie Sanders 
here. I am actually quoting two Nobel Prize-winning economists, 
Robert Shiller and George Akerlof.
    In their new book, ``Phishing for Phools: The Economics of 
Manipulation and Deception''--I recommend that book, by the 
way--they explain how financial transactions can target people 
for fraud. And we see it all the time, hidden commissions, 
illegal kickbacks, steering to higher-cost products. We know 
that criminals who perpetuate mortgage fraud and price-fixing 
schemes try to exploit the gaps between Federal and State 
enforcement to target innocent consumers.
    Now, Attorney General Zoeller, on the screen is a quote 
from a State attorney general, a very wise man. He said, ``One 
of the things that we have learned from a wave of mortgage 
fraud, price-fixing schemes, and other scams is that white-
collar crimes don't occur neatly within a single jurisdiction. 
They cross State lines and international borders, and the 
criminals try to exploit the gaps between Federal and State 
enforcement to target innocent consumers.''
    The same AG, very sharp guy, said that to fight the 
ingenuity of these criminals, Federal and State and law 
enforcement agencies must operate seamlessly without 
jurisdictional disputes, bureaucratic roadblocks, or inertia. 
Do you recognize these words, sir?
    Mr. Zoeller. I will pass.
    Mr. Ellison. Well, I do. They are your words.
    Mr. Zoeller. All right.
    Mr. Ellison. You said those things.
    Mr. Zoeller. I wrote them. I didn't say them.
    Mr. Ellison. Yes, well, said them, wrote them.
    Mr. Zoeller. All right.
    Mr. Ellison. You communicated them to the world.
    Mr. Zoeller. No, I will stand by that. I think that is a 
healthy approach to it. No, it is exactly--
    Mr. Ellison. You are not running from those words, are you?
    Mr. Zoeller. No, absolutely not.
    Mr. Ellison. Good. Because I agree with those words. They 
are from your November 2009 statement on the interagency task 
force on fighting white-collar criminals. Now, I just thought I 
would pull that out to light. Why should--could you just share 
with me your take, why should abuses in small dollar lending 
industry not be subject to the same national standard you 
advocated in 2009? What is the difference?
    Mr. Zoeller. There is a major difference in the markets 
here. When we are talking about mortgage lending and some of 
the big banks and the enterprises like that, you are really 
talking about a different type of consumer. There were some 
difficulties there.
    In the small market, I think what is really missing is you 
are already talking about people who are underbanked or 
nonbanked. They are in a different financial position. They may 
be in stress already. And right next to me is the 
representative of the loan sharks. So they are not here today, 
but if we close out this market, that is where people will go.
    Mr. Ellison. Let me ask you this. Thank you for your 
answer. Mr. Silberman, I wonder, is there any overlap between 
the person who might go to a payday lender and a person who 
might have gotten a mortgage on a no-doc, low-doc, ninja loan 
and gotten defrauded and had false terms put before them before 
they signed up? Is there overlap between these two different 
markets? Or are they pretty much mutually exclusive?
    Mr. Silberman. Congressman, in truth, I really don't know 
the answer to the question.
    Mr. Ellison. That is too bad. Okay. You know what? You may 
not know the answer to the question. I have a feeling that 
there is a very large degree of overlap to those two bodies of 
people. I can say that based as a politician who knocks on 
doors and talks to citizens every single day that when the 
mortgage foreclosure crisis was banging, a lot of those people 
who were facing foreclosure actually did go to payday lenders, 
and there is a tremendous amount of overlap. And I don't agree 
that there is much of a difference.
    Let me just ask you if you know this, Mr. Silberman. I want 
to thank you and your staff for your important work and the 
work you are doing to improve the financial marketplace. 
Specifically, I want to applaud you for considering the rule in 
payday lending traps. And I hear from constituents, both 
borrowers and the pastors and imams who serve them, and rabbis, 
as well, the faith community is in this space and wants to 
protect people, about the damage of these short-term, high-cost 
loans.
    On the screen is a map of the state of payday loan laws 
which show great gaps in consumer protections. And I want to 
urge you to move forward with the proposed rule. I discussed 
the agency's March statement with my constituents, and we want 
to ensure that borrowers can realistically be able to repay the 
loan.
    The outline of your payday lending proposal suggests that 
the rulemaking will include a process for verifying a 
borrower's income. Could you provide some insight into what 
that process could look like for small dollar lenders, 
particularly those with respect to borrowers that are paid 
primarily in cash? And I think we are low on time.
    Chairman Neugebauer. The time of the gentleman has expired. 
If Mr. Silberman would respond in writing to the gentleman's 
final question?
    Mr. Silberman. I would be happy to do so, Mr. Chairman.
    Chairman Neugebauer. The Chair now recognizes the gentleman 
from Pennsylvania, Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    For Mr. Silberman, borrowers have diverse credit needs. To 
meet those needs, there should be a vibrant market with many 
choices for short-term, small dollar credit. These choices 
should include credit cards, installment loans, single payment 
loans, deposit advance loans, and debit overdraft protection 
services.
    Given the small amounts and short terms of loans, banks and 
other institutions need a simple, streamlined processes to 
evaluate and provide credit in a manner convenient for 
customers. I have significant concerns that the Bureau's 
proposed small dollar lending framework will choke off the 
ability of banks and others to meet their customers' needs for 
short-term loans.
    Will the Bureau's proposed rule allow banks and other 
institutions to continue offering short-term loans using simple 
streamlined procedures?
    Mr. Silberman. Thank you, Congressman. Again, I don't want 
to get ahead of ourselves and speculate as to what the final 
rule or even proposal will say. What I can say to you is that 
we have been meeting very closely with representatives of 
community banks and credit unions. It is not our intention to 
disrupt the kind of thoughtful, relationship lending that they 
do, and we will be carefully trying to make sure that we issue 
a proposal that is respectful of loans that they are making to 
consumers that are affordable loans for those consumers.
    Mr. Rothfus. Can you tell me, is there anything wrong with 
the way that Florida regulates its payday lending industry?
    Mr. Silberman. I'm sorry. Could you repeat the question, 
Congressman?
    Mr. Rothfus. Is there anything wrong with the way Florida 
regulates its payday lending industry? And I ask that because 
the entire Florida delegation, both Republicans and Democrats, 
across the ideological spectrum, from conservative to liberal, 
wrote the CFPB expressing concerns about the CFPB rulemaking.
    Mr. Silberman. Thank you, Congressman. We have actually 
looked separately at data from Florida and we find the very 
same pattern that we find in reports on the Nation as a whole, 
which is to say a significant percentage of consumers getting 
loans they cannot afford ending up in long-term cycles of 
indebtedness so that we believe there is a need to add on top 
of the rules that Florida has adopted another rule.
    Mr. Rothfus. Let me ask you this. The cozy relationship 
between the Bureau and the Center for Responsible Lending has 
been widely reported. Employees have moved between the Bureau 
and the CRL during the rulemaking process. There has been 
extensive communication and coordination between staff. And at 
one point, the CRL provided the CFPB with an outline of their 
proposal to regulate small dollar lending so that the CFPB 
could work to improve it.
    In fact, there were so many meetings between the Bureau and 
the CRL that in an April 2014 e-mail, you remarked that it had 
been almost 3 weeks since you communicated and that you were 
``starting to have withdrawal pains.''
    I think most people would consider this intimate type of 
relationship to be inappropriate. How do you respond to that?
    Mr. Silberman. Thank you, Congressman, for the opportunity 
to respond. We have throughout this process engaged extensively 
with stakeholders across the spectrum with advocates, with 
representatives--
    Mr. Rothfus. Were there others that you started to have 
withdrawal pains for not being in touch with them?
    Mr. Silberman. I would--if I did not have regular input 
from any side of the debate, I would certainly feel that I was 
not doing my job. I have been particularly careful, since I 
came to this job from an industry perspective, having worked 
for 12 years, as Congressman Pearce noted, for a financial 
services firm, I have been particularly careful to make sure 
that I hear perspectives that are different from the 
perspectives that I was used to coming to this job--
    Mr. Rothfus. Do you know whether the Center for Responsible 
Lending has any affiliates that would provide services that 
would compete with payday loans?
    Mr. Silberman. I understand the Center for Responsible 
Lending does have an affiliate which is a credit union. From 
what I am told by the payday loan industry representatives I 
have spoken to, they don't believe that products of that kind 
would be competitive with--the credit union product would not 
be competitive with their product, but they do have products--
    Mr. Rothfus. You are taking a proposal from the Center for 
Responsible Lending, where they are in that space of short-term 
loans or they have an affiliate is, correct?
    Mr. Silberman. Congressman, we received proposed outlines 
suggesting what our proposal should be from many different 
people from all sides of the issue.
    Mr. Rothfus. Do you know whether the affiliate of the 
Center for Responsible Lending does any business in Florida?
    Mr. Silberman. I do not.
    Mr. Rothfus. I yield back, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from South Carolina, Mr. Mulvaney, is 
recognized for 5 minutes.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Mr. Silberman, let's stay on this same topic. In 2006, our 
neighbors to the north, North Carolina, banned payday lending 
outright. Do you think they were right to do so?
    Mr. Silberman. Congressman, I don't really feel it is my 
place to make a judgment of that sort here representing the 
Bureau.
    Mr. Mulvaney. Okay. Neither do I. In 2014, South Carolina 
passed some laws dealing with payday lending. We allowed it to 
exist and put certain restrictions on it. Were we wrong to do 
so?
    Mr. Silberman. Congressman, again, I would not want to make 
those judgments. As I have tried to emphasize, our role is to 
make sure that all citizens and all States have the benefit of 
Federal law.
    Mr. Mulvaney. I only wish that your Director agreed with 
you. I just got a letter today from Mr. Cordray that says the 
exact opposite. It says you do have an opinion. It says, 
``While these markets are in many jurisdictions subject to 
State regulation, like South Carolina, we remain concerned that 
consumers across the country face risk from practices in these 
markets.'' So clearly, the CFPB does have an opinion as to 
whether or not we were right or wrong, for example, to put a 2-
day cooling off period in our law in 2013.
    Earlier today, you said in response to Mrs. Love that you 
would not eliminate any State law. You remember that, right?
    Mr. Silberman. Correct.
    Mr. Mulvaney. You then told Mr. Luetkemeyer that you did 
not seek to preempt anything and that you are only creating a 
floor. Do you remember that, as well?
    Mr. Silberman. Yes, sir.
    Mr. Mulvaney. Okay. The proposal that you have made, at 
least on your website, is for a 60-day cooling-off period. We 
have a 2-day cooling-off period in South Carolina. Would you 
still consider a 60-day cooling off period to act as a floor in 
South Carolina vis-a-vis our 2-day rule?
    Mr. Silberman. Congressman, let me first say that the 
outline of the proposals under consideration said that after 3 
loans in succession, there then would be a 60-day cooling-off 
period. We would not have--
    Mr. Mulvaney. That is fine. And ours says after a certain 
number as well; I think it is eight. But go ahead. Keep going.
    Mr. Silberman. We would view that as a floor. You could add 
on top of that. You could--
    Mr. Mulvaney. A floor. Well, let's think that through. So 
if I am there in South Carolina and I have taken my third loan, 
you would now require a 60-day wait period before my fourth and 
we would require a yes-or 2-day. Do you still think your 60 day 
is a floor? Or is my 2-day the floor?
    Mr. Silberman. I think our 60 day is a floor on which you 
could add additional protections, yes.
    Mr. Mulvaney. Really? Do you really believe that? Or is 
that just what you were told to say? Come on, now. Because 
nobody believes that is a floor. It is a ceiling, isn't it?
    Mr. Silberman. No, sir.
    Mr. Mulvaney. We have a lower threshold than you are 
suggesting.
    Mr. Silberman. It is certainly not a ceiling, since you 
could have a 61-day or a 70-day.
    Mr. Mulvaney. Yes.
    Mr. Silberman. It is a floor.
    Mr. Mulvaney. And it would be a floor if ours was 61 and 
yours was 60. Ours is 2. Yours is 60. This is just the English 
language, Mr. Silberman. It is okay to admit that either you 
are wrong or you are taking a different position, but you can't 
call it a floor when your requirement is more restrictive than 
ours is. If you were to pass a regulation that requires a 60-
day cooling off period, wouldn't that preempt my 2-day cooling-
off period?
    Mr. Silberman. Congressman, I don't mean to be splitting 
hairs, but I think there is a--
    Mr. Mulvaney. I don't want you to split hairs. I just want 
you to answer the question.
    Mr. Silberman. That is what I am going to try and do, sir. 
I think there is a well-understood definition of what 
preemption means and that the answer is, no, that we would be 
establishing a floor. You are certainly right that if a State 
had a less restrictive rule, our floor would take precedence in 
that sense. But it would--
    Mr. Mulvaney. So if I am not preempted, then I am still 
allowed in South Carolina--you pass a Federal rule on a 60-day 
wait period, I have a State rule at a 2-day period. You are 
taking the position you are not preempting me. It would still 
be legal for me as a payday lender in South Carolina to 
acknowledge and abide by the 2-day rule?
    Mr. Silberman. You would be obligated under Federal law to 
comply with Federal law, of course.
    Mr. Mulvaney. And it is still your position, as you sit 
here, that that is not preempting the State law? Do you 
really--when people look back at your Harvard degree, is that 
really what you want them to look at?
    Mr. Silberman. Yes, Congressman.
    Mr. Mulvaney. Okay, good. That is fine. All right. Let me 
ask you a different question. You said earlier in response to 
Mrs. Love that in your research, you actually had talked to 
people who had benefited from, and then other people who had 
been negatively impacted by, the payday lending system. And you 
said it was roughly two-thirds, a third in your analysis. I 
will assume that is the same roughly from State to State. It 
may be different from various States, but let's just assume for 
sake of discussion it is the same.
    As between you and the legislature of the State of Ohio, 
who is better suited to balance the interests of those two-
thirds versus the third?
    Mr. Silberman. Congressman, we have an obligation under the 
Dodd-Frank Act, under the statute Congress passed to protect 
all consumers in all States from practices that are unfair or 
abusive.
    Mr. Mulvaney. So it is your belief that you are better 
suited than the legislature of Ohio to do that balancing act?
    Mr. Silberman. It is my belief, our belief that we have an 
obligation to protect all--
    Mr. Mulvaney. So you don't believe that you are better 
suited?
    Mr. Silberman. Congressman, as I said, it is my belief--
    Mr. Mulvaney. I am just trying to--I mean, do you believe 
or don't you believe? Which one?
    Mr. Silberman. I believe we have an obligation--we don't 
make judgments about who is better suited. We make judgments 
about what our obligations are, and our obligation is to 
provide the protections that Congress has given.
    Mr. Mulvaney. I will look forward to continuing this 
another day.
    Thank you, Mr. Silberman.
    Chairman Neugebauer. I thank the gentleman. Mr. Pittenger 
is recognized for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Silberman, I am on your right. Welcome. You are the man 
of the house. And reasonably so. You have a very impressive 
background. Graduate of Brandeis University, graduate of 
Harvard Law School, you clerked for Justice Thurgood Marshall. 
You are esteemed in every respect. You have worked for the AFL-
CIO as their general counsel. You are the acting Deputy 
Director of the largest agency ever created in the history of 
this country, funded at $600 million a year, with no 
accountability to anybody.
    It is pretty remarkable, your background and really the 
power that you have. Do you believe, Mr. Silberman, that Big 
Brother is a good thing?
    Mr. Silberman. I'm sorry, Congressman, I missed--I was 
listening to the biography and I missed the question.
    Mr. Pittenger. It sounded good and it is very impressive. 
Do you believe in Big Brother?
    Mr. Silberman. Do I believe in Big Brother? I am not sure 
how to answer that question, Congressman.
    Mr. Pittenger. Do you believe that there are those who know 
best, who are better educated, have more background, better 
expertise than the common guy and really can help them direct 
their lives better?
    Mr. Silberman. I do not believe that is our role, sir.
    Mr. Pittenger. Do you believe that your policies would 
convey that? Do you believe--let me ask you this--when you see 
a Snickers commercial on TV, do you believe people are being 
exploited when they see that commercial and they want to go eat 
a candy bar, and maybe that might lead them to a health 
problem, perhaps diabetes or some other concern?
    Mr. Silberman. That is far outside our jurisdiction, sir.
    Mr. Pittenger. But let's follow the train of thought. I 
wish you would have known my dad, Mr. Silberman. He was a very 
funny guy. My dad, we grew up in central Texas. And he loved 
his barbecue, and he loved his fried catfish and his Jimmy Dean 
sausage with biscuit. Or he would trade off and maybe have 
pancakes with a lot of syrup and butter. And he lived his life.
    And he was told by my sisters occasionally when they could 
get a word in that, ``That is not good for you, Dad. You really 
need to not be eating those things.'' And Dad said, ``You know, 
I am really not interested in that. I like the quality of my 
life. I am not worried about quantity.'' Dad lived until he was 
91.
    But he made his choices. And that is what freedom is all 
about. Do you believe that the American people are entitled to 
make choices?
    Mr. Silberman. Congressman, again, I believe that surely 
they are entitled to make choices so long as they are protected 
from situations where they are unaware of the risks, the costs, 
and they are able to protect themselves. That is what Dodd-
Frank tells us--
    Mr. Pittenger. From your opinion, from your point of view, 
isn't that correct?
    Mr. Silberman. No, we try and--that is--
    Mr. Pittenger. No, that is an opinion. That is your 
opinion, isn't it?
    Mr. Silberman. No.
    Mr. Pittenger. That is your opinion? Yes, sir, that is my 
point. Then you do believe in Big Brother. And I think that is 
the disconnect between Washington and outside this beltway. The 
people really want to live their lives. And they are tired of--
if I can say this respectfully--elites in Washington who know 
best how to lead their lives.
    And there is an enormous reaction to that today. It is a 
very compelling statement that is being made. I don't know if 
you have been out there in the hinterlands to sense that, but 
people are allowed to make choices with what they want to do 
with their lives. And what you are saying is, we want to limit 
your choices because we know what is best for you.
    And I think that is the problem, the current--the real 
fundamental problem that we are dealing with. People have needs 
in their lives or desires in their lives, and whatever it is, 
it is their choice. And don't you think people should be 
allowed the freedom to make choices? When I grew up, I left the 
umbrella of my family. I wanted to make my own choices. Some 
were good, and some were bad. But I wanted to make my own 
choices. Did you have that experience when you grew up and you 
were ready to live your life? Did you want to make your own 
choices?
    Mr. Silberman. Yes, sir.
    Mr. Pittenger. Okay. Well, let's allow people to make their 
choices. And that is a fundamental American freedom. And what 
you are saying is, no, you really aren't allowed to have that 
freedom because there is a group of us who live up here who 
really do know what is best for you. And let us determine that 
for you. That is the mentality that is repugnant to the 
American people.
    Thank you. I yield back.
    Mr. Pearce [presiding]. The Chair would like to thank each 
one of the witnesses. You have been very gracious with your 
time and your answers. And you will be excused. We will take a 
5-minute recess while we bring the next panel up. Mr. 
Silberman, if you feel like we have not asked you enough, 
please feel free to stay into the second panel. Thank you very 
much.
    [laughter]
    Mr. Silberman. Can't get too much of a good thing, Mr. 
Chairman.
    [recess]
    Chairman Neugebauer. For our second panel of witnesses, we 
have Mr. Dennis Shaul, chief executive officer of the Community 
Financial Services Association of America; Mr. Kelvin Simmons, 
who is testifying on behalf of the American Financial Services 
Association; Mr. Robert Sherill, a consumer; Dr. Thomas Miller, 
Jr., a visiting scholar at the Mercatus Center at George Mason 
University; and Dr. Frederick Douglass Haynes III, senior 
pastor at the Friendship-West Baptist Church in Dallas, Texas.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    Mr. Shaul, you are now recognized for 5 minutes.

    STATEMENT OF W. DENNIS SHAUL, CHIEF EXECUTIVE OFFICER, 
      COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA

    Mr. Shaul. I thank you for the opportunity to speak this 
afternoon on behalf of my membership and I hope also on behalf 
of the customers whom we serve.
    If I were to sum up our position in a single sentence, it 
would be that regulation is not decimation. And by any standard 
that one chooses to look at, whether it is the printed material 
given out to us on SBREFA or the Charles River study that we 
have done, this is an intention on the CFPB's part to decimate 
this industry and lay it to waste.
    Now, if the proposal turns out to be less than that, so 
much the better. In his written testimony, Mr. Silberman is 
quoted on page 8 as saying--as going on--I know that they are 
honest, dedicated, hard working individuals, but we have a deep 
and profound difference with regard to where they are going.
    And to put it in perspective, it is a difference both on 
substance and on procedure. The difference in procedure is what 
might be called for any athletic fan the ``shifting 
goalposts.'' When we first met with them, we were told that the 
object was to do a better disclosure and that would cover 
things. Obviously, that didn't work.
    Then we were told that if we came up with a set of 
discussions with them, perhaps we could iron things up. Those 
discussions came to nothing. Then we went through the SBREFA 
panel, and though Mr. Silberman thinks that it is still being 
considered, there is not one person who came through that 
SBREFA panel who believed that their words which went to the 
question of their continued existence found any hearing from 
those who represented the CFPB.
    And then when we finally get to the point of the complaints 
that were supposed to be the guiding star, we were told, with 
regard to payday lending, we find two things--there are very, 
very few of them, and those that come through are often from 
States that do not have payday lending, suggesting a couple of 
things, that the complaint portal is a not very reliable guide, 
and that people find a way when they don't have legal payday 
lending in their State to still get the loan.
    And, by the way, as an asterisk to that last point, the 
Administration's late effort to enter into some form of subsidy 
for private entities that are already partially subsidized, to 
enter into this field, is not a workable solution for any 
number of reasons that we cannot get into today, but it 
establishes one central fact. They finally recognize that this 
is a demand-driven product, and that is important.
    Now, we heard a lot about the ability to repay. Do you 
really believe that there is anybody who loans money that 
doesn't seek an ability to repay? The question is this: Is the 
ability to repay that is outlined in the proposal anything but 
a sheet that covers up other aspects of what they want to do? 
Or as one of the writers of the impending rule said to us, you 
don't understand. The object of what we are doing with ability 
to repay is to make sure there isn't a second loan. That is not 
a second loan too close to the first; that is to make sure 
there is not a second loan at all.
    And we heard a lot about how many sequences and so on. Let 
me show you--and I will make sure that you all get a copy of 
this--this is from the pages of the CFPB proposal or paper of 
last March, sequences: 3 loans or less, 64 percent; 6 loans or 
more, 25 percent; 17 percent for 8 loans or more.
    I ask you, when you heard the testimony this morning, did 
you get a sense that was what we were talking about? Of course 
we are all concerned about change. This is a dynamic industry, 
and there will always be change. There will be problems to be 
fixed, and there are always answers for customers who are not 
well-served.
    But there is not a ready substitute for what we provide. 
And one of the problems we face with the Bureau is they make no 
distinction between unlicensed payday lenders, people who are 
in the business of giving payday lenders online, tribal 
lenders, storefront lenders. And the differences are profound. 
We have a set of best business practices and we have lost 
members because of it.
    It is not fair to any of us to equate us with those who go 
through no regulation at all. And where is the pending rule for 
those who operate illegally without any regulation at all? It 
is nonexistent.
    I know that I have to wrap up, Mr. Chairman, in a quick 
way, but let me just say this. The ability to repay construct 
affords one and only one thing that I think could be construed 
as novel in looking at the field of how to do an ability to 
repay, and that is a greater attention to the obligations than 
individual borrower might have besides his obviously to pay off 
the payday loan.
    Yes, that should be contemplated, that should be made a 
part of our analysis of ability to repay. But first of all--
    Chairman Neugebauer. Mr. Shaul, I am going to have to ask 
you to wrap up.
    Mr. Shaul. Yes, I will wrap it up. But it is, I think, 
amazing that anyone at the Bureau believes that our operators 
do not do a rather rigorous job of working out an ability to 
repay. They don't continue in business unless people pay off 
these loans.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Shaul can be found on page 
80 of the appendix.]
    Chairman Neugebauer. I thank the gentleman.
    Mr. Simmons, you are now recognized for 5 minutes.

   STATEMENT OF KELVIN SIMMONS, TESTIFYING ON BEHALF OF THE 
            AMERICAN FINANCIAL SERVICES ASSOCIATION

    Mr. Simmons. Good afternoon, Mr. Chairman, Ranking Member 
Clay, and Ranking Member Waters.
    My name is Kelvin Simmons, and I am here on behalf of the 
American Financial Services Association (AFSA) and the millions 
of traditional installment loan customers that AFSA member 
companies serve and they have served over the last 100 years.
    Thank you so much for giving me the opportunity to talk 
about the Consumer Financial Protection Bureau's proposal for 
small dollar loans and the impact it could have on deserving 
consumers.
    I ask that my full statement be submitted for the record so 
that I can focus on three basic issues: one, the need for small 
dollar credit; two, the fact that depository institutions are 
not equipped to address that need; and three, the demonstrated 
ability of traditional installment lenders to offer safe and 
affordable access to small dollar loans.
    On my first point, there is a need for small dollar credit. 
And let me paint a picture of my experience in the community 
that I come from. I was born and raised in Kansas City, 
Missouri. I am a former State Director of economic development 
for the State of Missouri, and during my tenure, the State's 
banks, credit unions, and financial services divisions were 
under my executive authority.
    I was president and CEO of one of the largest community 
development corporations in Missouri, and also vice president 
of one of the largest FQHCs in the State of Missouri. I also 
was elected twice to serve on the Kansas City City Council.
    In the community that I came from, particularly in the ZIP 
Code that I came from, there were no locations in that area 
where I grew up that offered safe, reliable, affordable, small 
dollar loans. I characterize this as living in a community that 
had a financial services desert.
    To further illustrate my financial services desert point, I 
served as the commissioner of administration for the State of 
Missouri from 2009 to 2012. In that role, I had dual signatory 
authority with the Missouri State treasurer to issue all checks 
on behalf of the State of Missouri. Even though my name 
appeared on all of those checks, there was not one bank in my 
hometown ZIP Code where I could even deposit those checks.
    There is a need for small dollar credit because it is 
inevitable that a car will break down, things will happen, 
emergencies will occur. There is also a national need that has 
been recognized by CFPB Director Richard Cordray who testified 
last fall about preserving the ability of installment lenders 
and others to continue to make responsible loan products.
    On my second point, depository institutions are not 
equipped to make those small dollar loans. And despite their 
effort, there have been studies, there have been pilot programs 
to encourage banks to lend in this space. The FDIC found that 
banks do not see small dollar loans as a profitable business 
line.
    I have had an opportunity to work with one of the largest 
African-American-owned banks in Kansas City that is based out 
of New Orleans, Louisiana, Liberty Bank. They do a wonderful 
job of loaning to their customers. But this is one of the 
issues that they said was very difficult and they participated 
in the pilot program with the FDIC. They contended that it is 
difficult: They could do it, but it would require subsidization 
in order to be able to do that. And so it made it very 
difficult, even as it is a very good community bank.
    So the question is, who is best suited to meet the need of 
high-quality small dollar loans? My answer is the third point, 
traditional installment lenders that offer safe and affordable 
small dollar loans. What are the installment loans, traditional 
installment loans? They are fixed-rate, fully amortized, small 
dollar loans repaid equally in monthly and payment 
installments. These loans are affordable and they basically 
give an opportunity for the borrower to meet their monthly 
budgets.
    There are plain-vanilla loans, transparent, easy to 
understand terms, due dates and payment amounts. Installment 
lenders underwrite the loans based on consumer credit reports 
and other factors. The Center for Financial Services Innovation 
has published a guide outlining the characteristics of high-
quality loans. Those characteristics which include ability to 
repay, opportunity to improve a borrower's financial health, 
transparency, accessibility, those are the kinds of 
characteristics.
    I was in Los Angeles in December of 2015, and the National 
Black Caucus of State Legislators adopted a resolution, which 
is also in my full statement, endorsing the development of 
responsible underwritten small dollar loans.
    We understand the CFPB concerns about trapping borrowers in 
the cycle of debt, but traditional installment loans, again, 
are fully amortized loans and paid off in equal payments in 
principal and interest over a period of time. I see that my 
time is coming to the end, so I will go to the conclusion.
    In conclusion, I hope that I show to the members of this 
committee that there is a great need for high-quality, small 
dollar loans in communities like the one that I came from. 
Traditional installment lenders meet the definition of that 
high-quality, small dollar loan, and I hope that more 
importantly, the CFPB will be careful to preserve the ability 
of installment lenders to offer these responsible loan 
products.
    Thank you. I look forward to any questions that you may 
have.
    [The prepared statement of Mr. Simmons can be found on page 
103 of the appendix.]
    Chairman Neugebauer. Mr. Sherill, you are recognized for 5 
minutes.

             STATEMENT OF ROBERT SHERILL, CONSUMER

    Mr. Sherill. Good afternoon, Mr. Chairman, and members of 
the committee. My name is Robert Sherrill, and I am here to 
give a consumer's perspective on this policies and stuff. I am 
not a policy guy or I am not a lobbyist or anything like that. 
I am just coming from the ground where it is really happening.
    I have used these loans before. I went to prison, made some 
mistakes. Nothing violent, but I chose to get money in an 
illegal way. I got out. And when you are a felon, the odds are 
stacked against you. You can't get jobs. My family doesn't have 
money like that. So to call someone that I am related to, to 
get money is out of the question.
    The alternative to that scenario is going to payday loans. 
I know a lot of people who utilize this service to cash their 
checks. I did it myself. I still do it from time to time. I 
have utilized getting the loans when I didn't have the means to 
get money. And my concern is, when they take it away, what are 
we going to do? Because from the looks of it, I don't see 
anybody here who looks like they need a loan from a payday 
place.
    So me personally, I am on the ground. We need it. When the 
odds are stacked against you and you don't have anybody to 
call, what do you do? Has anybody here ever experienced that 
feeling? Because it is not a good feeling when, no matter where 
you turn, you have nowhere to go. And so, those places offer an 
alternative for us. And I will continue to use them, as will a 
lot of people I know use them, as well.
    [The prepared statement of Mr. Sherill can be found on page 
91 of the appendix.]
    Chairman Neugebauer. I thank the gentleman.
    Mr. Miller, you are now recognized for 5 minutes.

STATEMENT OF THOMAS W. MILLER, JR., VISITING SCHOLAR, MERCATUS 
                CENTER, GEORGE MASON UNIVERSITY

    Mr. Miller. Chairman Neugebauer, Ranking Member Clay, and 
members of the subcommittee, thank you for the opportunity to 
appear today.
    A heated debate has surrounded consumer credit for many 
decades. Because banks do not make small dollar loans to 
consumers with damaged credit, the marketplace has responded 
with an array of small dollar loans. Americans who rely on 
these products are not wealthy and many live from uncertain 
paycheck to uncertain paycheck.
    People who make regulatory decisions on behalf of these 
consumers are likely well-intentioned, but sometimes they might 
not fully understand how small dollar loans can help borrowers 
who are facing difficult financial circumstances. In my 
scholarly work on consumer credit, I seek to understand how 
small dollar loan markets work and how to restructure 
regulations to improve borrower welfare.
    Access to credit is a fundamental freedom for all 
Americans. But our research shows that consumer credit 
regulation often reduces this freedom.
    My testimony contains three main points: one, the small 
dollar loan market is diverse because consumers have diverse 
needs; two, eliminating credit supply does not eliminate credit 
demand; and three, States can provide more credit options for 
consumers by increasing or even eliminating interest rate caps.
    Point one, the small dollar loan market is diverse because 
consumers have diverse needs. As noted in my written testimony, 
consumers generally know how to obtain small dollar loans and 
they generally understand the terms of these loans. In my 
experience, however, many people with good credit are not 
familiar with small dollar loans. It is incumbent, therefore, 
on anyone regulating, advocating, or studying any small dollar 
credit product to know the differences among them. My written 
testimony explains the basic workings of four types of small 
dollar loans. Importantly, these loans are not perfect 
substitutes for one another. These loans differ significantly 
in terms of loan size, length of loan, cost, repayment method, 
and underwriting processes.
    Point two, eliminating credit supply does not eliminate 
credit demand. The CFPB is currently exploring new payday loan 
rules that could dramatically reduce the number of payday 
loans. Without a thorough exploration of why some consumers 
often use payday loans, the CFPB proposes to set a limit of six 
payday loans per consumer per year. Such an arbitrary rule 
would eliminate 60 percent to 80 percent of payday loans made. 
Where will payday borrowers go for credit?
    Eliminating so many payday loans does not mean that 
consumers will magically stop borrowing or suddenly begin to 
borrow from other legal lenders. Instead, such a regulation 
could force some consumers already in desperate situations 
toward illegal lenders. Where is the compelling and convincing 
independent, rigorous research that shows repeated payday 
borrowing is, in fact: one, harmful to consumer welfare; and 
two, that a limit of six payday loans per consumer per year 
will do more good than harm?
    Point three, States can provide more credit options for 
consumers by increasing or even eliminating interest rate caps. 
In the early 1900s, consumer credit reformers battled illegal 
loan sharks by appealing to legitimate capital. At the time, 
reformers decided that costs and risks of making small dollar 
loans merited an APR of about 36 percent, which was six times 
higher than prevailing interest rates at the time. By 1940, 
most States had adopted a form of the uniform small loan law of 
1916.
    The model law had urged that any rate cap set ``should be 
reconsidered after a reasonable period of experience with it.'' 
Clearly, the succeeding 100 years exceeds a reasonable period.
    Figure three of my written testimony, however, shows that 
37 States still have rate caps at or below 36 percent. Nine 
have no rate cap. Policymakers of today would be wise to follow 
the innovative thinking of reformers in the early 1900s by 
dramatically revising or eliminating the 36 percent interest 
rate cap.
    Figure one of my written testimony shows the results of a 
low interest rate cap. A legal loan desert can exist. There is 
demand but no supply. In 1916, installment lenders could make a 
profit on a much smaller loan than they can today. Why? For any 
set of loan terms, the revenue is the same now as it was then, 
but production costs are much higher. Figure two of my written 
testimony shows the CPI is about 20 times higher today than it 
was in 1916.
    Let's look at a $500 loan. To bring installment lenders 
into this loan space, the allowable APR would likely have to be 
at least twice as high--that is, 72 percent--or even higher 
perhaps. APRs of 36 percent and 72 percent sound jarring, so 
let me put them in dollar terms.
    Increasing the APR from 36 percent to 72 percent on a $500 
6-month installment loan results in a monthly payment increase 
of $9.38, or $2.35 per week, the price of one big regular 
coffee. Consumers would willingly pay this small amount if the 
alternative is no loan or a loan product that does not suit 
their needs. Having more freedom of choice benefits consumers.
    Thank you. I stand ready to answer any questions.
    [The prepared statement of Dr. Miller can be found on page 
73 of the appendix.]
    Chairman Neugebauer. I thank the gentleman. And, Dr. 
Haynes, you are now recognized for 5 minutes.

  STATEMENT OF FREDERICK DOUGLASS HAYNES III, SENIOR PASTOR, 
           FRIENDSHIP-WEST BAPTIST CHURCH, DALLAS, TX

    Mr. Haynes. Thank you so much. Thank you, Mr. Chairman. And 
to all of you, our public servants and Ranking Member Waters.
    My name is Frederick Douglass Haynes, III. Several of my 
colleagues in pastoral ministry and I became alarmed as 
buildings once occupied by thriving restaurants and bank 
branches were taken over by payday and auto title loan stores. 
In the last 10 years, right there in Dallas, 20 payday and auto 
title loan shops opened within a 5-mile radius of our churches. 
Many of these stores are located right next to each other.
    A community that was already suffering as a food, job, and 
opportunity desert was and is being overrun by these predatory 
stores. It appeared that our underserved and underbanked 
community was being intentionally targeted for these high-cost, 
debt trap loans.
    Our concern was confirmed as we heard from members of our 
churches and residents in the community who were financially 
held hostage by these ``loans.'' They confessed that in a 
situation of desperation they had sought to get a loan that 
eventually became a trap. They made payments, every other week 
or monthly, only to get deeper in debt. They were in a 
financial hole, and upon getting a payday or car title loan, 
received a shovel instead of a rope.
    As a pastor, my heart went out to many who were victimized 
by these predatory practices. I will give you two case studies 
that are testimonies of persons who experienced this debt trap. 
A recently widowed 70-year-old grandmother took out a $300 
loan. She ended up paying $800. She has always been fiscally 
responsible, but as you know, life happens, and she had to take 
out this loan. She paid back the loan in full, but she had to 
roll over the loan several times, ultimately paying much more 
in interest than she borrowed.
    I am representing a 23-year-old college student. Both of 
his parents passed away, but he is determined to get his 
education in honor of his parents. He needed to purchase books 
for his classes. What was a $300 loan ended up costing him over 
$600. I could go on and on.
    Suffice it to say, all of them were hoping for a life 
preserver, but they received shackles instead. Payday loans in 
Texas carry rates of 500 percent annualized interest. Car title 
loans are in the range of 250 percent to 300 percent APR range. 
The Texas Office of Consumer Credit shows that 61 percent of 
balloon payday loans are refinance loans that are taken in 
order to repay the previous unaffordable loan. Every week, car 
title loans result in 847 car repossessions. That is immoral 
and unethical and unacceptable.
    A resident of our community shared with me that he had a 
car title loan that began as a $4,000 loan. The car was 
repossessed when he couldn't escape the debt trap, but ended up 
paying $8,200 in the process, and he still doesn't have a car. 
A coalition of churches and community groups sought to close 
the loophole in the State usury law in Texas that allows these 
businesses to charge over 500 percent in interest, but we were 
unsuccessful.
    We were undaunted and determined to free our community from 
these predatory practices, and so as a consequence we 
petitioned the city government in Dallas to rein in the 
destructive dealings of the payday and car title lenders. Our 
church has taken a step to be a solution to the problem, which 
is symptomatic of a larger problem of greed and economic 
exploitation, which has produced a widening wealth gap that 
threatens the fabric and future of our nation.
    We have launched a credit union, partnering with another 
church in our community, that held a Federal credit union 
charter. We now have several years of banking experience, and 
we now offer Liberty Loans, microcredit to members in need who 
are able to afford small dollar loans. We offer loans of up to 
$500 for 6 months at 28 percent annual interest, and 19 percent 
interest for members with a reasonable application fee.
    The good news is there has not been one defaulted loan, and 
all of those who are benefitting from this loan are paying the 
loan back on schedule, because they can afford it. A novel 
concept. It is good business. It has empowered the powerless. 
And it is moral.
    We are taking strides toward economic freedom in Dallas, 
but we still have a long way to go, not only in Dallas, but 
across the Nation. We want access to credit. But it must be 
quality credit. Anything less adds to the stress of the 
desperate and the needy.
    Well-crafted and compassionate legislation can weed out the 
predators and enable responsible and reputable lenders to 
thrive while rendering a helpful service to communities in 
need. We don't want Jesus to say in the judgment, I was hungry 
and thirsty and you gave me a payday loan.
    [The prepared statement of Dr. Haynes can be found on page 
70 of the appendix.]
    Chairman Neugebauer. I thank the gentleman. They have just 
now called votes, so I think what we are going to do, now that 
the panel has given their opening statements, is we are going 
to ask you to be patient here. I am not sure exactly how many 
votes; we have one vote. And so, I would ask Members to go over 
and vote as quickly as you can, and then we will come back and 
reconvene.
    So at this time, we are in recess subject to the call of 
the Chair.
    [recess]
    Chairman Neugebauer. The hearing will come to order. Before 
I close, I want to make a correction here for the record. Mr. 
Simmons is testifying today on behalf of the American Financial 
Services Association and not the law firm, Dentons. So for the 
record, we are correcting that. Thank you.
    I now recognize myself for 5 minutes to question the panel. 
And first of all, panel, thank you for your patience. Every 
once in a while, we have this little constitutional 
responsibility across the way there that we have to go over and 
do, and people that we represent kind of appreciate that.
    Well, Mr. Sherill, you have a great story to share. Your 
testimony was very compelling. You mentioned you had a tough 
time accessing credit when you got out of jail. When you got 
out of jail, they didn't send you a credit card?
    Mr. Sherill. No, sir. They gave me about $30 and sent me on 
my way.
    Chairman Neugebauer. When you said, okay, I have to have 
some money, I have to get my life started here, kind of share 
with me, how did you go shopping for different places that made 
these kind of loans looking for the best deal or the good 
terms? Or can you kind of just walk us briefly through that?
    Mr. Sherill. I went to a traditional bank, like a Regions, 
and tried to open up an account. I was really there for a loan, 
not an account. But they didn't give me a loan. They said they 
don't offer short-term lending and things like that.
    So I went to another bank, tried them out. I went to a 
credit union, and they didn't do it. You have to have an 
account with them. I didn't have time for that. I needed it 
right then. And so in my city, I went to one of the bigger 
payday lending places, and they gave me a loan.
    Chairman Neugebauer. And did you look at the conditions of 
the product? Did you think the product was fair? You asked them 
what the terms--it was very transparent what your costs were?
    Mr. Sherill. With the place that I go, they are strenuous. 
You just don't go in there and say, hey, I need a loan and they 
give it to you. You have to--it is protocol that you have to 
meet. It is criteria. And it is a protocol that is followed 
after you meet that criteria.
    You know, make sure you aren't this, make sure you are 
that. Sign here. Are you clear on what they explain to you, and 
you sign it. So after that, then you understand what they are 
giving you. And if you choose to accept, then you choose to 
accept.
    Chairman Neugebauer. Yes. I think you shared something with 
our folks when we were interviewing you, and I think one of the 
questions that was asked of you was, what would have happened 
if you couldn't have gotten a payday loan?
    Mr. Sherill. Like I said, I had no other option. It is 
different when you have options. So people who sat around--I 
could have called my grandparents or something like that, I had 
no other option. And if I wouldn't have taken that alternative, 
then I would have maybe had to go back to the streets, because 
that is what I knew. And I knew I could get it that way. But I 
am trying to change my life, and that isn't the way I wanted to 
go.
    Chairman Neugebauer. You have heard some of the testimony 
in the first panel that--did you feel like that you were being 
taken advantage of?
    Mr. Sherill. Not at all. I am 32 years old, and I am very 
competent. So I went in, and they explained it to me: You pay 
this. If you don't, then the interest rates are going to go up, 
if you don't pay back on time. And I understood that. I needed 
to borrow it for a while. Two weeks later, I paid it back. 
Probably I think one of the first time I borrowed like $250. I 
paid like around about $280 back, maybe somewhere in there, 
which wasn't bad, because it met my need at the time, so I 
needed it. So I would do that today if I had to.
    Chairman Neugebauer. I think in one of the comments--I 
don't know if it was in your testimony or not--but you have 
started your own business now. Is that correct?
    Mr. Sherill. Yes, I am a minority-certified company with 
the governor's office of diversity, with the Better Business 
Bureau, and I am with the National Chamber of Commerce now. I 
started my company from the ground up, due to loans from these 
type of places. So it works for me.
    Chairman Neugebauer. And I think you mentioned that you 
even from time to time still have used that to supplement your 
working capital in your business. Is that right?
    Mr. Sherill. Yes, I currently use that now. I employ 20 
people now. And some of them use the payday loan places to cash 
their checks and get money orders and pay their bills.
    Chairman Neugebauer. You heard the gentleman from the CFPB 
say that this product is hazardous. Did you find it hazardous?
    Mr. Sherill. No, because I heard all the testimony today, 
and no one is producing a better alternative. It is easy to 
come in here and say, this isn't going to work, that isn't 
going to work, but not one person has said, okay, we are going 
to implement this instead of that and it would be better. No 
one is doing that. So, no, it is not hazardous.
    Chairman Neugebauer. Dr. Miller, you have written 
extensively on consumer demand. Does the demand go away if the 
product goes away?
    Mr. Miller. No, sir. Demand will still stay for credit. And 
people will seek out sources for credit.
    Chairman Neugebauer. I see my time has expired. I now yield 
to the gentleman from Missouri, the ranking member, for 5 
minutes.
    Mr. Clay. Thank you, Mr. Chairman. And let me thank all of 
the witnesses for being here. In the interests of full 
disclosure, let me mention that I have known Mr. Simmons for 
over 25 years, so it is good to see you.
    In part of your testimony, you talked about the need, Mr. 
Simmons, for high-quality small investment lenders, and the 
need was there. What has been the experience of people in your 
community when they go to a traditional bank? What do you think 
happens to them that the industry that you represent is able to 
fill this void? What are you--
    Mr. Simmons. Congressman, there are a couple of different 
things with that question. One is the traditional installment 
lending industry has certain characteristics that are different 
than the other industries and the other products that have been 
discussed.
    With respect to the traditional installment lending 
industry, again, it is a fixed-rate, fully amortized, small 
dollar loan paid off equally in monthly installments over a 
period of time. So that is a different product than what was 
discussed with respect to payday a loan or a title loan, which 
in some of the cases you are looking at collateral either being 
bank account or the vehicle itself. And so that is vastly 
different.
    What I have found in my experience in the community that I 
come from that I talked about in my testimony is that there are 
oftentimes where those establishments are not in the community. 
And what that is simply saying is, in some cases, they may be 
outside of the ZIP Code that I was discussing with you. I am 
from 64130 in Kansas City, Missouri.
    Interestingly enough, we have a municipal ordinance that 
does not allow certain products to be in certain places within 
the community. Kansas City is one of those places that has a 
municipal ordinance that does not allow payday, title, or 
installment loan places to locate there if you are not already 
there.
    Mr. Clay. I see.
    Mr. Simmons. And so, it cuts that off.
    Mr. Clay. Thank you for your response. Reverend Haynes, if 
I may, the core of the CFPB small dollar loan proposal is to 
require a lender to check if the borrower has the ability to 
repay the loan. This seems like commonsense and standard 
practice in all other types of lending. Since some lenders seem 
alarmed by this rule, we can only assume that some of them are 
not doing this now. Can you share your experience and impact on 
communities around your churches when loans are given without 
considering an ability to repay it?
    Mr. Haynes. Yes, thank you very much. First of all, to 
have--as I shared earlier--some 20 car title and payday loan 
stores in the last 10 years to literally target and saturate 
our community and then to see the impact upon members of the 
community who in a desperate situation applied for such a loan 
and then found themselves 7 months--I have even seen one for 10 
months they were trying to pay back a loan because of 
rollovers.
    And so, of course, that has an impact on the family. It has 
an impact on the community. And let's be honest, if you were 
driving through our community and you saw payday loan stores 
next to each other, and you were looking to invest in that 
community, it is highly unlikely that you are going to see that 
as a wise investment.
    So in a real sense, the predatory nature of it has a 
tendency to not only impact in a negative way those families, 
but worse than that, the community becomes not only a food and 
job desert, but now it is an opportunity desert.
    Mr. Clay. What does that say about the banking industry? 
Apparently, there are obstacles here for people to get checking 
accounts. What does that say about the U.S. banking industry?
    Mr. Haynes. That the banking industry has a lot of work to 
do to expand options. One of the things that Brother Sherill 
said was that he had no other options. That is a sad statement 
on our democracy that he has no other options. And I think that 
justice is about expanding options, as opposed to narrowing 
options, especially to options that are the same principles 
that got us into the financial crisis that we as a Nation just 
got out of. And the sad reality is, these are the same 
principles going on, but they are targeting communities that 
historically have been denied opportunity.
    Mr. Clay. Thank you. My time is up.
    Chairman Neugebauer. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce, the vice chairman of the subcommittee.
    Mr. Pearce. Thank you, Mr. Chairman. I appreciate each of 
you being here.
    Dr. Haynes, I found myself earlier in your testimony 
wondering why you all didn't offer the product yourselves. And 
so then I was deeply gratified when you got to that point of 
the discussion that you did expand and go into doing the loans, 
which is the key to expanding opportunities, is competition.
    So my question is, have you seen a decrease in the number 
of payday lenders in the neighborhood? In other words, you 
mentioned the 20 in the 5 square miles around the church. Has 
that decreased as people choose the lower interest and the 
better service with the church there?
    Mr. Haynes. I can say that the payday loan store that 
opened 5 years ago down the street from the church is closed 
now. So that is a good sign for me. As a matter of fact, it is 
going to be a restaurant now.
    Mr. Pearce. Just how many loans would you say that you are 
servicing now through your church program?
    Mr. Haynes. Oh, wow.
    Mr. Pearce. A hundred, a thousand, ten thousand? In other 
words, what kind of expansion of the market have you seen for--
    Mr. Haynes. Again, we are new in the microloan department, 
and as a consequence, I would say it is in the number of about 
100 to 150.
    Mr. Pearce. That is fair enough. That is pretty significant 
in a new start-up. And I am serious to think other churches 
should be looking at this as a way--it really is a problem when 
you start passing laws. You get rid of the good as well as the 
bad. And when you offer competition, then the bad will go away 
because there is a better alternative. And so I worry about--
you had said that justice is expanding the options, not 
limiting them, and yet the thing that the CFPB is set on doing 
is going to limit the opportunities and--so I think that the 
better option is the competition drives the bad ones out of 
business. So, again, I compliment you.
    Just one small note. I noticed that you talk about the 20 
percent annual interest rate. And when you are talking about 
the payday lenders, you talk in terms of APR. Now, how much is 
the origination fee that you mentioned there?
    Mr. Haynes. The origination fee?
    Mr. Pearce. Yes, you say there is an administrative fee 
with your 28 percent. So what would that be?
    Mr. Haynes. Oh, that is very minimal. I don't have that 
figure with me right now.
    Mr. Pearce. About $20 bucks?
    Mr. Haynes. Pardon me?
    Mr. Pearce. Ten bucks or twenty bucks?
    Mr. Haynes. Ten bucks max.
    Mr. Pearce. Okay. But you see the difference there. Your 
APR suddenly went from 28 percent to 38 percent if it is $10, 
and so that is, again, from this side, it could be considered a 
minor point. But just compare apples to apples, if you would.
    Mr. Sherill, you heard earlier in the previous testimony 
the abusive practices that the one witness kept bringing up. 
Did you find those abusive practices that tried to string you 
out if you borrowed $500? I don't know what you borrowed, and I 
am not really interested. Did that string out to where you 
ended up paying back $10,000 for a $500 loan? You have heard 
that kind of--
    Mr. Sherill. Well, those are exceptions. There are a lot of 
people who use this product responsibly, like myself. You know, 
I wouldn't be here.
    I feel that if you borrow money, it has to be a need. So if 
you borrow it, you already have the means to an end, because 
you are thinking, okay, I have to pay it back. So me, I am 
thinking when I get paid, I am going to pay it back. And that 
is the only reason I think you should get one.
    Now, if you get one with no end in mind, then you are 
asking for the hiked fees and stuff like that. It is not meant 
for a long-term way of life. It is meant for a quick fix, you 
pay it back, and you move on.
    Mr. Pearce. So to an extent, you are saying that personal 
responsibility says that the product works pretty well if I use 
it responsibly, but if I don't take care of my obligations, 
then, sure, it can string out and out and out. But you didn't 
find it to be some guy sitting there with a green eyeshade on 
stringing you out and keeping you where you couldn't quite 
reach the goal.
    Mr. Sherill. I relate that to anything in life. If you use 
it responsibly, then it is a good thing. But you can abuse 
anything. We can abuse alcohol. We can abuse whatever--anything 
that is usable, we can abuse, basically. And this is just one 
of those things. If you use it responsibly, it will work for 
you.
    Mr. Pearce. And, by the way, I compliment you on your 
story, because it is a story that needs to be told to the 
Nation. We have a lot of people out there who have made 
mistakes and never recover from it. They don't have your drive 
and discipline. So my hat is off to you.
    Thank you very much. I yield back, Mr. Chairman.
    Mr. Sherill. Thank you, sir.
    Chairman Neugebauer. I thank the gentleman. And now, the 
gentlewoman from California, Ms. Waters, the ranking member of 
the full Financial Services Committee, is recognized.
    Ms. Waters. Thank you very much. I first would like to take 
a moment to thank Dr. Haynes for being here. I know how busy 
you are and how you are in demand all over the country, and 
that you were in California last night, and you flew in here 
and you have waited all day. And I want you to know, I truly 
appreciate that and the work that you are doing with the other 
ministers in this country who are focused on this issue and who 
are creating opportunities.
    I have been to Dallas. I visited one of your community 
days. And I saw how you brought all the resources from all over 
to be at the community day where people can have access to 
information about services, and I know how hard you work. I am 
very appreciative for you. Thank you so very much.
    Just quickly, when I first started today to talk about 
setting the tone and helping to create the picture of what we 
are dealing with, I will just quickly go through again the pain 
that is being fostered on certain communities and certain 
people in this country. Predatory lending almost destroyed many 
communities. And the home foreclosure problem was terrible. And 
these people who were victims of predatory lending were trying 
to live the American Dream, only to discover that they had 
signed on the dotted line for mortgages they could not afford. 
And when the devil came due, and the interest rates were 
increased, on and on and on, they lost their homes.
    We are still dealing with that. And the hedge funds are 
coming in and they are buying them up, and now we have a lot of 
people who are paying 50 percent of their income for rent 
because a lot of the foreclosed properties have been bought up 
by hedge funds and speculators. And they are not selling them; 
they are renting them and raising the rents, et cetera. 
Homelessness in the Los Angeles area alone increased by 12 
percent, and in the overall county, about 20 percent, and it is 
exploding all over the country.
    In addition to that, we are fighting these private, post-
secondary schools who advertise on television that you can get 
degrees and diplomas and they could help people have careers, 
and people take out these loans only to find out the schools 
are just ripoffs. We closed down Corinthian. There are a lot of 
others that we have to go after. But we are confronted with 
that.
    In addition to that, when you pile on top of that, the 
payday loans that are in targeted communities, the rent-to-owns 
where people are losing their cars, it is overwhelming almost. 
And so for each of these, those of us who work very hard on 
these issues are determined that we are going to create some 
change.
    Now, we never said we were trying to put people out of 
business. We raised the question, why can't you, Mr. Simmons, 
have loans at 36 percent, as we are doing with veterans? Why do 
we have 400 percent, 500 percent, 1,000 percent in these loans? 
Why can't you do 36 percent?
    Mr. Simmons. Congresswoman, with the testimony that I 
provided earlier, when the FDIC had its pilot program with 
respect to bringing the banking institutions into this 
particular space, a number of those banking institutions, as 
you will find with other financial institutions, said the 36 
percent was very difficult to lend, given the numerous things 
that they have to deal with, the cost, the labor issues, a 
number of those issues. And so, credit unions were in some 
cases asked to do the same thing. And it was very difficult to 
do.
    Ms. Waters. Okay, I don't want to cut you off, because I 
know that story about the overhead being so much that they 
could not afford to do it. But just as they have done it with 
the veterans, they are making out. They are making money. And 
we are experimenting with some credit unions. Kinecta, for 
example, has joined with payday loan operation in Los Angeles 
where people get involved. They are banking the people. They 
are charging less. They are doing some financial literacy, on 
and on and on.
    So I and many others are not saying we want to put you out 
of business, but we are not going to stand by and allow yet 
another what I consider unfair ripoff to people who can least 
afford it. And so I want you guys to think about it. I want you 
to think about why--for example, you said that in your own 
community, they don't allow payday loans. Why do you think they 
don't allow payday loans?
    Mr. Simmons. Congresswoman, in the community that I come 
from, the municipal ordinance that was put in place was to stop 
the proliferation of what the council at that time considered 
predatory practices.
    Ms. Waters. Okay, that is good. And that is why 15 other 
States have basically either said you can do no more than 36 
percent and if you don't, if you can't live with that, get out, 
we don't want you at all. But there is a reason why your 
municipality has prohibited the proliferation, as you would 
call it, and there is a reason why 15 States are denying payday 
loans the opportunity to operate in the way that they do.
    So with that--
    Chairman Neugebauer. The time of the gentlewoman has 
expired.
    Ms. Waters. My message is, drop the interest rates. Look at 
36 percent or so. Pastor is doing it with 28 percent. We 
believe it can be done. Create the opportunity for this 
gentleman and don't gouge him.
    Chairman Neugebauer. The time of the gentlewoman has 
expired.
    Ms. Waters. I yield back the balance of my time.
    Chairman Neugebauer. I now recognize the gentleman from 
North Carolina, Mr. Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. Mr. Shaul, I would 
just like to get a better handle on the borrower and what must 
he provide to obtain a loan from one of your associated 
members? What are the best practice efforts that they have to 
follow to this potential client?
    Mr. Shaul. It begins with proof of employment. They must 
have a checking account. They must have a credit history, which 
is looked up. And basically, that is what is required.
    Mr. Pittenger. So you are talking to people who have an 
understanding of the practice of credit, who have a credit 
history, they are aware of what they are doing, these are 
thoughtful, knowledgeable people who have already been through 
the credit process before? You are not just--
    Mr. Shaul. That is correct. I would make one addition, that 
we have increasingly--and partly under regulatory oversight--
also looked at the schedule of obligations that the borrower 
would have so that we know that the ability to repay doesn't 
crowd out the other obligations like rent, food, et cetera, 
that he or she has.
    Mr. Pittenger. So the perception, really, in some of the 
testimony is if you grab people off the street and you have 
exploited them and taken advantage of them, and they blindly 
don't even know what they are getting involved in. And on the 
contrary, they already have a credit history. It has to be a 
good, solid history. You wouldn't be loaning the money to begin 
with.
    Mr. Shaul. We have had a very difficult time, Congressman, 
getting people to understand that this is a business. And if 
you are loaning money and you don't get it back, you are not in 
business very long. Contrary to some people's thinking, if you 
look at the schedule that the CFPB has put out on sequence of 
loans, there is only about 17 percent of people who are over 6 
loans in a year.
    That 17 percent I would submit to you is a problem. And it 
usually is one of two things. Either that person shouldn't have 
had a loan in the first place, or in the second place, 
something happened between the time the person took out a loan 
and the time the payment was due.
    Our best practice requires that if a person cannot repay 
the loan at the third time it is due, then he is allowed to go 
into a program where he gets no further interest charge and he 
gets a longer term to pay. I hear these stories, and I am as 
horrified by some of the outrageous things I hear as anybody 
else is. The question then becomes, who made that loan? And 
almost always when we run them down, we find that it is not 
someone who is a member in our association or anyone reputable.
    There is a myth that there are States that don't have 
payday lending. Every State has payday lending. The question 
is, is it regulated payday lending? Or is it payday lending 
that you can take off the net? And if you just go to your home 
computer and you look up the State of Washington, or Idaho, or 
whatever State you choose, even including New York State, and 
you have the patience to go through New York State payday 
lending, you will see the opportunity to get a loan, even 
though that is not regulated. Those are dangerous.
    And we have for a long time said to the CFPB, you ought to 
get at this question by requiring universal registration of 
everybody who makes a loan, and then you ought to ask every 
State to pass a law that says, if you are not registered, you 
can't collect. That will put a stop to this illegal lending, 
and then we will see how many of these anecdotes are left, 
because I believe that most of these anecdotes stem from 
illegal vendors.
    Mr. Pittenger. Thank you very much. It is a very good 
answer.
    Mr. Simmons, you have extensive background, experience in 
economic development and oversight of financial matters. Do you 
believe that these loan practices are predatory?
    Mr. Simmons. I can only speak for the traditional 
installment lending industry. And in answering your question, 
we believe that there is an opportunity for these loans to be 
options, additional loans for individuals because we believe 
that they are safe, they are affordable, they are over a period 
of time, that an individual would know exactly what their loan 
payment would be over a period of time in monthly installment 
loans.
    Our position would be that as you look at the potential 
rule and the proposal, that consider the other options that are 
available. And we believe that a traditional installment loan 
and the lending industry that has been around for 100 years, 
different than other products, is an opportunity to be choice 
given to individuals that is not predatory in nature.
    Mr. Pittenger. Thank you very much. I yield back.
    Chairman Neugebauer. And now the gentleman from Texas, Mr. 
Green, is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank these witnesses 
for appearing, as well.
    Dr. Haynes, let me thank you for the stellar job that you 
have done. I want to go beyond this question of payday lending 
for just a moment and mention your THRIVE program, where you 
have had over 100 young Black males to work with you between 
the ages of 16 and 19, paid them not minimum wage, but $10 an 
hour, and they are getting mentoring and they are getting 
tutored. And you are doing a good job in helping people to find 
their way in life. And I want you to take just a moment, if you 
would, so that people will know who you are and tell us a 
little bit about the things that you are doing at your church.
    Mr. Haynes. Okay, thank you so much. The THRIVE program was 
in response to the murder of Treyvon Martin, and the outrage in 
our community had to be harnessed for good. So on the one hand, 
we wanted to stand against injustice in the justice system, and 
at the same time provide opportunities for empowerment.
    And so for the last 2 summers, we have partnered with other 
corporate entities, our church has, and we have recruited, we 
have trained, and we have mentored young brothers for the 
purpose of helping them to secure employment in some of the 
corporations in Dallas.
    And the program has gone well. This year, we are going to 
expand it to include young ladies within that same age range. 
And so it is our hope always to on the one hand address the 
injustices in the system, and at the same time to empower those 
who are powerless.
    Mr. Green. And you hope to help the Mr. Sherills of the 
world, people who may find themselves in his position, such 
that they don't have to go to payday lenders. Is that a fair 
statement?
    Mr. Haynes. That is a fair statement. I admire his 
testimony and his strength. And it is my determination that he 
will have other options other than a predatory loan. Though he 
has made good on his--and I think that is wonderful--it is just 
that in many instances, he is the exception to the rule. And so 
we need to be concerned about those who suffer from the rule.
    Mr. Green. Mr. Sherill, let me compliment you, as well. I 
think that you have done well with your life and I wish you the 
very best. But there are lots of folks who haven't been as 
successful, and they have been victims. And I speak for the 
victims.
    Those who have been in a position to make it through these 
payday loans, wonderful. And, by the way, I don't want to put 
payday lenders out of business, either.
    So let's just go through some questions quickly. If you 
believe, as Mr. Shaul does, that you can regulate payday 
lenders, raise your hand. So, Mr. Sherill, you don't think that 
you should regulate payday lenders?
    Mr. Sherill. Well, I don't get into the politics into it, 
so I really don't understand the question.
    Mr. Green. I don't want you to get into the politics of it. 
You got into the politics of it when you decided to come to 
this hearing, Mr. Sherill, just so you know.
    Mr. Sherill. Yes.
    Mr. Green. Now, let's try it again. If you believe, as Mr. 
Shaul does, that you can regulate payday lenders--by the way, 
they are regulated across the country so that you all know--do 
you believe you can regulate them? Raise your hand. All right. 
Everybody has raised their hand. Let the record reflect--I want 
you to be on the record. The record has reflected that you 
believe they can be regulated.
    If you believe that it was appropriate for the military to 
be regulated, payday lending to the military to be regulated, 
raise your hand. So now, Mr. Simmons, you don't think that we 
should have regulated the military. Mr. Sherill, you don't 
think that we should have regulated the military. And, Mr. 
Miller, you don't think we should have regulated the military.
    Do you think that the military folks ought to be treated 
the same way other people are being treated and taken advantage 
of to the same extent. Is that a fair statement, you don't 
think they should be regulated? I will ask you again so that 
you can be on the record. You have to be on the record now. You 
are talking about the military of the United States of America. 
If you believe that we should have regulated military payday 
lending, raise your hand. All right. Let the record reflect 
again that the same three persons do not believe that this 
should be done.
    Mr. Shaul. Congressman, can I at least--
    Mr. Green. There are no halfway answers right now, because 
I only have 20 seconds left. I apologize, okay? If I had more 
time, I would work with you. See, here is the problem. And I 
respect the three of you for taking the positions that you have 
taken. But here is the problem. A person today not in the 
military can be victimized by some of these payday lenders. Not 
all, but some. But if the next day he gets in the military, he 
can't be victimized. What happened to him to make him a person 
who shouldn't be a victim overnight?
    Chairman Neugebauer. The time of the gentleman has expired.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman Neugebauer. The Chair now recognizes the gentleman 
from Colorado, Mr. Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. I would like to thank 
the panel for taking the time to be here today and to be able 
to hear your individual stories. And I know in my district in 
Colorado--in fact, we have well over 200 letters that have been 
sent to our office, constituents out of my district who have 
taken the time to be able to just write in and be able to 
express their support for having the freedom to be able to go 
out and meet their financial needs, to be able to have some 
choices in some very specific circumstances.
    A constituent out of Alamosa wrote us saying that they used 
one of these short-term loans to be able to pay for unexpected 
car repairs, and another in Monte Vista to be able to catch up 
on a couple of bills, and yet another for medical bills.
    What they are concerned about is the overreaching hand of 
the Federal Government. And you have had to sit here a long 
time, so maybe a little exercise is a great idea. How many of 
you here think that the Federal Government is the sole 
embodiment of good choices for how to be able to run a business 
in this country? Let the record show not one person raised 
their hand.
    What we have is our colleagues have pointed out is an 
industry that is regulated and creates some opportunity in 
those hometown communities to be able to provide access in a 
time of some specific need to be able to do that. But, Mr. 
Simmons, I would like to be able to maybe get a couple of 
comments from you. When you were giving your testimony, you had 
talked about a financial service desert in your community.
    Mr. Simmons. Yes.
    Mr. Tipton. And just really kind of a couple of points. I 
think that I would like to be able to hear you address on this. 
The importance of that access and, in your community, when it 
was effectively outlawed, people were told to go away from 
providing some of the service to the community, did the need go 
away, and where did they go?
    Mr. Simmons. I would like to say that, Congressman, the 
need is there. The need is great. It is demonstrated by the 
fact that in the State of Missouri last year, I believe there 
were 180,000 traditional installment loans that are made.
    With respect to small dollar loans made in the entire 
State, that is well over a million that is made on an annual 
basis. So there is significant need that is there. My testimony 
today was to talk about the traditional installment lending and 
what it is as an option with respect to that need.
    And so I commend the gentleman, Dr. Haynes, who talks about 
giving the options in the community that allows the community 
to have additional options. I commend him for that. I commend 
individuals that try to find different ways and different 
options.
    At the same time, I am very familiar with the fact there is 
still great need and there are at times cracks that often 
people will slip into, and they won't be able to get one loan 
versus the other. And so for those that are doing that 
yeoperson's job like he is doing, we commend them.
    At the same time, I think it was said earlier, giving the 
options where you have the opportunity to say here are other 
products that are in the marketplace and given competition and 
given the opportunity to have other products is something that 
is still needed within the community.
    I didn't have that within the community that I grew up in. 
I see what transpires in a community where there is a financial 
services desert. That need is still there. If there are not 
people like Dr. Haynes filling that gap and filling that role 
or having safe and reliable loans like I talked about with 
traditional installment lenders, it is very difficult because 
the banks don't do this.
    Mr. Tipton. And then it will move into a completely 
unregulated market, which is probably going to be a lot more 
punitive?
    Mr. Simmons. I would say that is what we hear in the 
community often is, I am going to find a way to deal with my 
needs.
    Mr. Tipton. To be able to help your family.
    Mr. Simmons. To be able to help.
    Mr. Tipton. I apologize. I am a little short on time, and I 
did want to get Dr. Miller in. Does it raise concerns for you 
that we are seeing the CFPB, where it has done no analysis of 
existing State regulatory structures or practices, now trying 
to be able to set the bar nationwide?
    Mr. Miller. Yes, it does. I think having 50 States try 
regulations gives us 50 opportunities to see what works and see 
what doesn't work. And the States do have various regulatory 
methods that they have employed in the past.
    My question is, on research, let's see independent research 
that is done that is not a position but it is independent by 
academics who look at the data and ask questions and draw 
conclusions and publish the results in peer-reviewed journals.
    Mr. Tipton. Thank you so much. My time has expired.
    Chairman Neugebauer. Time has expired. The Chair now 
recognizes the gentleman from Kentucky, Mr. Barr, for 5 
minutes.
    Mr. Barr. Thank you, Mr. Chairman. And thanks to our 
witnesses. And, first, to Dr. Haynes, let me just thank you and 
commend you for stepping in and providing through your church 
opportunities for credit, for folks in your community. And I 
think there is certainly a role for that in the faith-based 
community to do that.
    And also, as we have seen so many times, faith-based 
institutions and institutions of private society, frankly, 
doing a much better job than the government in offering 
financial literacy to the people of this country.
    To Mr. Sherill, I wanted to ask you, in your compelling 
personal story of redemption and accessing a payday loan to 
build a business and take advantage of a second chance that was 
given to you in your life and really be the embodiment of the 
American Dream, at that time in your life, did you have access 
to a faith-based church or organization that could have given 
you credit?
    Mr. Sherill. No, I had access to nothing. And that is why I 
chose to go to the payday lending. There is nothing out there. 
Like, again, I said, I commend Dr. Haynes for that. If he had 
one in my city, I am pretty sure there would be a lot of people 
like me going to see him.
    We are looking for something. We have nothing. And that is 
why I chose to go to payday lending.
    Mr. Barr. And I think that spells it out right there. 
Sometimes, there aren't as many choices as we need. And I think 
your story demonstrates that the greatest protection for 
consumers, the greatest consumer protection is competition and 
choices. And if we had more choices, we would have better 
opportunities for people to do what you did and achieve the 
American Dream. And I commend you for that.
    Let me just ask you, Mr. Sherill, if you didn't have that 
opportunity for that payday loan to build that business, where 
would you be today?
    Mr. Sherill. Possibly back in prison, because we revert 
back to what we are used to. And if I am used to the streets 
and getting money from the streets, then I would most likely go 
back to that, because it is survival of the fittest. If you 
don't have it, then you have to go get it some type of way.
    Mr. Barr. Again, I appreciate the fact that your story is 
one of redemption and second chances and taking a risk and the 
hard work that it takes to do what you have done. There has 
been a lot of talk today in this hearing about predatory 
lenders and making people victims. Mr. Sherill, do you view 
yourself as a victim?
    Mr. Sherill. No, sir. Not at all.
    Mr. Barr. So if you don't view yourself as a victim of your 
business partner advance, describe that relationship that you 
have with your lender?
    Mr. Sherill. Well, my lender--I got to know them. They are 
basically a pillar of our community in Nashville. They give 
back a lot. I am here solely because of me and my reasons. But 
they are--in our community, they give back a lot. And they gave 
me an opportunity when nobody else would.
    Mr. Barr. To Mr. Simmons and Mr. Shaul, I think, Mr. 
Simmons, you made the point that banks don't do this. And I 
want to explore that issue, because, again, as I said before, I 
think competition and choice is the best way to protect 
consumers, in addition to State-based regulation, consumer 
protection laws. Kentucky has one of the most advanced consumer 
protection laws in this area, and unfortunately the Bureau 
would cancel out what our general assembly and our regulator 
and our governor have done in that area.
    But let me just explore why banks don't do this. The CFPB, 
the OCC, and the FDIC, they have issued rules that have limited 
banks' abilities to compete in the overdraft space, in deposit 
advance, in short-term lending, with only a few banks left even 
offering such products.
    So it looks to me like the regulators in Washington are 
squeezing both sides of this. And as Mr. Sherill says, they are 
going to go--you are going to go get a loan--I think your 
testimony, Mr. Sherill, was I can say that there other places I 
could have gone for a loan. You don't want me to tell you about 
those places or those people, but they are out there.
    If we are denying the American people access to credit from 
banks and traditional lenders, and then the Bureau comes in on 
this side and denies people like Mr. Sherill opportunities 
here, and there are not great people like Dr. Haynes in the 
community and the faith-based community, where are these people 
going to go? Mr. Simmons, Mr. Shaul?
    Mr. Shaul. May I say, Congressman, the Bureau has adopted a 
policy that is simply this: The easiest way to protect 
consumers is to deny them credit. There is no problem then with 
whether there is any misuse. But that is precisely a recipe for 
disaster, because contrary to what the Bureau seems to be 
willing to propone, ask yourself how many Americans have 
advanced economically or socially without the use of credit.
    The people to whom we loan money have a more desperate need 
often for that credit than anybody else does. The failure to 
appreciate that the reasons that banks have moved out of 
neighborhoods has a lot to do with simple economics. The cost 
of complying with the post-2001 disaster in New York City, the 
cost of that, the compliance cost for most banks has tripled 
since in that 15 years.
    Banks look upon everybody who comes through the door as to 
whether or not they are a profit center. That means that they 
have very little interest in those individuals who don't look 
at that moment in time as though they will continue to be a 
profit center. That means that we have a much larger non-
depository base than we used to have. Regulating it is very 
important, but having it there is even more important than the 
regulation.
    Chairman Neugebauer. The time of the gentleman has expired.
    Mr. Barr. Thank you. I yield back.
    Chairman Neugebauer. The gentleman from Texas, Mr. 
Williams, is recognized for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman. And I want to thank 
all of you for taking time today. It has been a great dialogue. 
I appreciate it.
    I am a small-business owner in Texas. And I may be one of 
the few on this committee who actually is a lender. I deal in 
credit. And I just cannot believe, as I go through my life 
every day up here, how people want to bash and condemn small-
business people who are trying to employ people, trying to make 
things better.
    Mr. Sherill, I know that we talked about victims today. And 
I hope that the victims who are out there, whomever they are, 
are looking at you as someone they can look up to and get 
themselves out of that status and get into where you are and 
own a business and employ people and do great things. And I 
know everybody is proud of you.
    And I want to just say this really quickly to you, Mr. 
Sherill. Tell me about--we talked about the place you borrowed 
the money. But I believe that Mike and Tina Hodges own that 
business. And what kind of people are they?
    Because here is the deal. All of us who employ people, who 
own businesses, we just get hammered by this Administration, 
just nonstop, every single day. I want to know what kind of 
people you do business with. These are good people, I bet.
    Mr. Sherill. Yes, they are stand-up, honest people who give 
people opportunities. Like I said, they do a lot in the 
community. I could go on and on about the stuff that they do. 
They are great people. They are wholesome people. They are 
family people. I have known them for about 4 or 5 years now, 
and I have built a rapport with them over the years.
    It started out as business. And then later on, we created a 
rapport. Initially it was strictly, hey, I didn't know them, 
and then as years went to--as years developed, I got to know 
them personally.
    Mr. Williams. That is the same story across the country 
about people who invest and try to help folks. And I am glad to 
hear about that. And just that story in itself, Mr. Chairman, I 
would say is another story of the American Dream.
    Mr. Sherill. Yes, sir.
    Mr. Williams. And so I hope we don't destroy that, which it 
seems like we are trying to every single day up here.
    Now, Mr. Simmons, my question to you is, after listening to 
your testimony today, I believe it is safe to say that the need 
for small dollar lending is real. Now, you note in your 
testimony that traditional installment lenders make traditional 
installment loans or to make high-quality small dollar loans. 
But I don't think the CFPB believes that.
    What the CFPB doesn't understand is the importance of 
providing service to customers. They don't deal in service. 
They have no idea on how to give service to their customers, 
which is all of us. Most of the people I deal with in my 
business, the car business, and the people you are here to 
represent are folks that we can really make a difference for. 
We try to improve things, whether they need a new car to drive 
or a used car to drive to get to work or a small loan to get 
through a tough month. We are there to support them, because 
they are valued members of our community. The experience can be 
personal. And, frankly, again, we get back to the consumer and 
the people know better than the Federal Government.
    So let me ask you, Mr. Simmons and Mr. Shaul, these 
questions. As we discussed earlier, in 2008 the FDIC conducted 
a small dollar loan pilot program to see if banks would 
participate in this space: 31 banks participated, with 446 
locations in 26 States. I think what the FDIC program showed 
was that it didn't save customers any money. In his budget 
release this week, the President requested $10 million for the 
small dollar lending program to be administered by community 
development financial institutions. This, of course, would be 
funded by the customer, i.e., the taxpayer.
    So can you elaborate, either one of you, more on this 
program and why it will or won't work, to really save the 
consumer any money at all?
    Mr. Shaul. It won't work. Bluntly put, the FDIC experiment 
did not work. And it did not work because you cannot subsidize 
your way or artificially control rates and believe that the 
market will respond.
    This is a problem because, first of all, it will bring to 
full measure something we have all feared, and that is the CFPB 
runs always the risk of becoming an allocator of credit, 
picking winners and losers. And this is the direct attempt to 
do that.
    Second, this is the nose inside the tent. If it is $10 
million today, it could be $100 million or $1 billion soon. 
Third, and most importantly, anyone can make loans, provided 
they know that their losses are going to be floored by another 
entity, and that is what is being talked about here.
    There is a contingent who believes that you can do away 
with what is now being offered by the private sector, and you 
can get at that either by Operation Chokepoint or you can get 
at by rules that make it impossible for us to operate. Having 
done that, then the solution becomes to put in an artificial 
resuscitation effort which would be this kind of program.
    Mr. Williams. Thank you. I have 4 seconds. Does anybody 
want to comment on the President's request in funding for a 
loan loss reserves in this year's budget? I am out of time.
    Mr. Chairman, I yield back.
    Chairman Neugebauer. I thank the gentleman. And I now 
recognize the gentleman from Missouri, Mr. Luetkemeyer, the 
chairman of our Housing and Insurance Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And welcome, Mr. 
Simmons, a fellow Missourian. It's good to see you again, sir.
    Mr. Simmons. Thank you.
    Mr. Luetkemeyer. Dr. Miller, kind of a quick couple of 
questions for you here. Do you know off the top of your head 
what the average loan loss ratio is, of an average payday loan 
company?
    Mr. Miller. I do not.
    Mr. Luetkemeyer. Okay. Do you know what the rate of 
complaints are average across the country for per thousand 
transactions, something like that?
    Mr. Miller. No, sir, I don't know exactly. I think it is 
low, but I don't think--I don't know exactly.
    Mr. Luetkemeyer. Mr. Shaul, do you know that number off the 
top of your head?
    Mr. Shaul. I would like to make two comments about that. 
Historically, State by State, it is very low. Director Cordray 
said to us that he would be driven by the complaint data. If 
you look at the complaint data, two things are apparent. The 
payday loan complaints are very, very low. They are at either 
the first or second lowest in all of the categories that are 
measured by complaints.
    Second, when you analyze those complaints, they contain two 
other kinds of categories within them, loans that are 
complained about, denominated as payday loans in States that 
don't have payday lending, which means that people who took a 
non-regulated online loan are complaining about the fact that 
they are being serviced poorly, paying too much, one thing or 
another.
    That problem the CFPB has had no willingness, no appetite 
for tackling at all, although it is obviously one that should 
be tackled, because it impedes the businesses that do have 
reputations to protect, and it is disastrous for the consumers.
    The second thing about the complaint portal is that it is 
irrational. If someone writes in and says, I didn't get a loan, 
that is my complaint, we get a ding as an operator as though 
there were a legitimate complaint. It is baffling to me that 
the single exercise that was meant, we were told, to guide the 
question of examination, compliance and rulemaking shows us to 
be not a category of problems, but we are the ones that are 
first out of the box and being set upon by a rule, and yet the 
rule does nothing about the real complaints that are there and 
about the real victims who are not being in any way brought to 
a situation where they will be compensated.
    Mr. Luetkemeyer. In my experience, when I was a financial 
services chairman back in Missouri for a few years, and 
actually worked on at that time a landmark piece of payday 
lending legislation, so it became the model for a while of how 
you address this issue, I checked every year with our consumer 
protection folks in the State there. And the payday loan folks 
per thousand transactions, their rate was always less than 
banks and credit unions.
    Mr. Shaul. Yes.
    Mr. Luetkemeyer. It was across-the-board. That is not even 
close.
    Mr. Shaul. That is the nationwide experience.
    Mr. Luetkemeyer. So it tells you that there are a lot of 
satisfied customers out there. And we have heard some testimony 
today about some who are not happy. And every industry has that 
kind of a situation. I don't care whether you are selling cars 
like Mr. Williams is or whatever your industry is, if you are 
selling toothpaste. Somebody is not going to be happy with your 
product and misuse it somewhat.
    One of the concerns I have is--it really is kind of 
interesting, we have--the government took over the student 
loans, and we continue to increase the student loan data, get 
more students in debt over their heads than can actually ever 
get out, and today we are worried about the problem with payday 
loans when we have hundreds of thousands of dollars that some 
of our students are getting into and haven't heard a whimper 
out of the other side on that. It is amazing.
    But I would like to talk for just a second about 
Chokepoint. Mr. Shaul, you brought that up. Obviously, you are 
probably aware that I am the sponsor of the Chokepoint bill 
here in Congress, and my colleagues helped me pass that last 
week and sent it to the Senate to try and stop the nonsense. I 
have an e-mail address in my office that takes Chokepoint 
stories. I had one last week, and it was a payday lending one. 
Two weeks before that, it was a credit bureau in California. 
And 2 weeks before that, it was a tobacco shop in Florida.
    I have about a minute left here. Can you quickly give a 
couple of stories about Chokepoint?
    Mr. Shaul. I had one in my e-mail today from the State of 
California, a small operator in a very small town. This has not 
stopped. We still feel that the examiners have not been given 
sufficient disciplinary action from the top that they will stop 
advising people, banks, institutions, to cut off those of us 
who fall in the category that by their taste they don't like, 
not by the law, not by any guidance, but by their taste.
    And I must tell you, I was extremely disappointed by the 
President's statement. Evidently, we have come to this point 
with regard to due process in this country where it is 
justified to go after those who are regulated and innocent by 
virtue of the statement he issued because it could interfere 
with getting at some of those who are actually guilty of crime.
    Were we to take that standard into the criminal law or were 
we to do anything else with it, we would have repudiated most 
of the Anglo-Saxon and United States history as far as rights 
go.
    Mr. Luetkemeyer. I appreciate your comments, sir, and I 
appreciate the indulgence of the chairman. I think this is a 
key point that your members are being deprived of their 
livelihood without due process.
    Mr. Shaul. No due process.
    Mr. Luetkemeyer. It is a Constitutionally protected right. 
Thank you, Mr. Chairman.
    Chairman Neugebauer. The time of the gentleman has expired.
    The gentleman from Minnesota, Mr. Ellison, is recognized 
for 5 minutes.
    Mr. Ellison. Let me thank the chairman and the ranking 
member.
    For anybody who might be watching these proceedings, I want 
to say thank you and welcome for being here today. I would like 
to point out just as a matter of rule that the reason that of 
the five people who are offering testimony today, four sound 
like they are taking a Republican position, is because that is 
the way the rules work. The Republicans get to choose, well, 
four--the majority of the witnesses and the Democrats get to 
pick just one.
    So anybody who just doesn't know how it works around here, 
this is not representative of how people feel about this issue. 
It is just the Republicans have the majority, so they get to 
pick four people who agree with them.
    Anyway, Dr. Haynes, it is always a pleasure to see you. I 
want to thank you for your tireless fighting for people all the 
time. You are always at the forefront of standing with people. 
And you remind me of some dear friends I have in Minneapolis 
where I am from. We also have strong faith-based movement 
working in predatory payday lending in our communities.
    And by that, I don't mean all payday lenders are always 
predatory, but there is predatory payday lending and we should 
try to stop it. And I would hope everybody on this panel would 
agree with me about that.
    I work with at home friends of mine, Reverend Paul Slack of 
New Creation Church, Reverend Grant Stevenson, Pastor Billy 
Russell, Greater Friendship Missionary Baptist Church. I could 
fill them up with this room, and I guarantee you I would have 
more people complaining about the way payday loans are abused 
than people on the other side of the fence, if this were a true 
representative sample of how people feel about this issue.
    Can you tell us why faith-based leaders, yourself and 
others who you work with, and institutions are involved with 
this small dollar lending issue? What brings you to it?
    Mr. Haynes. Number one, it is a moral issue in that in our 
faith tradition, as in most faith traditions, we believe that 
God is concerned about those who cannot do for themselves. And 
as a consequence, we have a responsibility to address those 
structures and systems that reinforce that situation of being 
dispossessed and left behind.
    Mr. Ellison. Now, Doctor, you don't just preach from the 
pulpit. You actually go one-on-one with people.
    Mr. Haynes. Right.
    Mr. Ellison. In your experience, do most people understand 
the terms that they are getting into? Is there sufficient time 
for them to--do the lenders take time for them to really know 
what they are getting into? Or are these desperate people in a 
desperate situation?
    Mr. Haynes. Thank you. They are desperate. And when you are 
in a desperate predicament, and this is what is marketed to you 
through the airwaves, and it is all you see on your streets, 
again, you make choices within the confinement of your options. 
And so they make those choices out of desperation, and they are 
not going to take the time to read the whole thing. And most of 
us don't take time to read our whole loan piece whenever we 
apply for a loan.
    So to judge them I think is inappropriate and unfair. So 
you are talking about desperate people in desperate situations 
who want to do the right thing, but they are being set up by 
predatory practices.
    Mr. Ellison. So one of the things that some of the folks 
who engage in these predatory payday loans--and, again, by 
saying--I use the predatory not to modify all payday loans, but 
the predatory ones--and sadly there are too many. And I would 
hope that everyone in the industry would want to hold up a high 
standard.
    A lot of times, these folks who advocate for just predatory 
lenders doing whatever, they say that they have to be allowed 
to do it or there would be no other alternative. Do you agree 
with that?
    Mr. Haynes. Not at all. As a matter of fact, again, our 
microloan fund that we are offering at the church through our 
credit union is there and it is doing well. The people are 
paying back well. As a matter of fact--and I meant to correct 
the gentleman earlier--if you are paying well on the loan, it 
goes from 28 percent to 19 percent. So we are still doing well. 
And I believe that there are those out there who would like to 
offer these kinds of opportunities.
    Mr. Ellison. Yes, and do you find that other congregations 
are looking into the same thing? I know in Minnesota there are 
a lot of congregations thinking about this stuff. They would 
even try to buy back people's payday loans and then set them on 
a more moral framework.
    Mr. Haynes. Oh, without question. As a matter of fact, 
there are several churches in the area that I referenced 
earlier, where we had this inundation of a community targeted 
by the industry. And as a consequence, there are several of us 
who are trying to pick up on this model. I am even partnering 
with the church across town that is a white Southern Baptist 
Church, because, again, they are against this kind of predatory 
practice.
    Mr. Ellison. So it is moral and right to stand up for 
consumers. Your churches offer alternatives. And there are 
other people around the world in the country doing the same 
thing.
    Mr. Haynes. No question.
    Mr. Ellison. Thank you, sir. It is an honor to see you 
again.
    Mr. Haynes. Thank you.
    Chairman Neugebauer. The time of the gentleman has expired. 
I would like to thank our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 6:02 p.m., the hearing was adjourned.]

                            A P P E N D I X




                           February 11, 2016
                           
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