CRL's Testimony: A National Payday Charter Is A Bad Idea
Date Filed: July 24, 2012
Testimony of Kenneth W. Edwards Vice President of Federal Affairs, Center for Responsible Lending, before the House of Representatives Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit in regards to hearing on Examining Consumer Credit Access Concerns.
The testimony emphasized three points:
H.R. 6139 and similar legislation would circumvent the carefully contemplated supervisory, enforcement, and rulemaking authority of the Consumer Financial Protection Bureau (CFPB or Bureau) over certain non-depository financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) consolidated consumer protection statues and authorities that had previously been scattered among many different agencies. Dodd-Frank also significantly augmented federal consumer protection jurisdiction over non-depository institutions—such as mortgage services companies, private student lenders, and payday lenders—and sought to level the playing field by carefully vesting the CFPB with authority over these non-bank entities. In particular, Congress identified payday lenders as important non-depository creditors to be regulated under the Bureau’s supervisory authority.
H.R. 6139 would expressly allow non-depositories to evade 230 years’ worth of state consumer protection laws, licensing, and supervision that are essential to protecting vulnerable consumers from abusive financial practices. Throughout the previous decade, the OCC has used national charters as a basis to preempt state consumer protection measures to the detriment of many borrowers. By obtaining a federal charter, qualifying non-bank creditors could evade state consumer protections, while availing themselves of weaker standards that would be used in the federal chartering process. The bill would also permit federal charter holders to ignore state usury limits or rate caps on small loans that have been in existence for decades.
H.R. 6139 would roll back important federal credit protections for consumers. The bill would undermine more than 40 years of established and accepted consumer protections under the Truth in Lending Act (TILA) by exempting lenders from annual percentage rate (APR) disclosure obligations on loans. Under the bill, for loans of one year or less in duration, credit companies would be required simply to disclose the cost of a loan as a dollar amount and as a percentage of the principal amount of the loan. This would make it much more difficult for borrowers to compare the true cost of different products.