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EXAMINING CONSUMER CREDIT ACCESS 

CONCERNS, NEW PRODUCTS, AND 

FEDERAL REGULATIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JULY 24, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–149 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 24, 2012 ..................................................................................................... 1 

Appendix: 

July 24, 2012 ..................................................................................................... 57 

WITNESSES 

TUESDAY, JULY 24, 2012 

Berlau, John, Senior Fellow, Finance and Access to Capital, the Competitive 

Enterprise Institute (CEI) ................................................................................... 32 

Bishop, Frances C., owner, Dollar Pawn, Inc., on behalf of the National 

Pawnbrokers Association and the Alabama Pawnbrokers Association ........... 31 

Edwards, Kenneth W., Vice President, Federal Affairs, the Center for Responsible Lending (CRL) ............................................................................................. 34 

Flores, G. Michael, Chief Executive Officer, Bretton Woods, Inc. ....................... 35 

Gardineer, Grovetta, Deputy Comptroller for Compliance Policy, Office of 

the Comptroller of the Currency (OCC) ............................................................. 7 

Jackson, Mary, Senior Vice President, Corporate Affairs, Cash America International ................................................................................................................. 30 

Munn, Hon. John, Director, Banking and Finance, State of Nebraska Department of Banking and Finance, on behalf of the Conference of State Bank 

Supervisors (CSBS) .............................................................................................. 9 

APPENDIX 

Prepared statements: 

Berlau, John ...................................................................................................... 58 

Bishop, Frances C. ............................................................................................ 65 

Edwards, Kenneth W. ...................................................................................... 74 

Flores, G. Michael ............................................................................................ 80 

Gardineer, Grovetta ......................................................................................... 114 

Jackson, Mary ................................................................................................... 125 

Munn, Hon. John .............................................................................................. 127 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of Americans for Financial Reform ................................. 143 

Baca, Hon. Joe: 

Written statement of The Hispanic Institute ................................................. 150 

Luetkemeyer Hon. Blaine: 

Written statement of The 60 Plus Association ............................................... 152 

Written statement of Quik Pawn Shop ........................................................... 154 

Written statement of Hon. Mark L. Shurtleff, Attorney General, State 

of Utah ........................................................................................................... 156 

Edwards, Kenneth W.: 

Written responses to questions submitted by Representatives 

Luetkemeyer and Baca ................................................................................. 161 

Gardiner, Grovetta: 

Written responses to questions submitted by Representative Baca ............ 167 

Written responses to questions submitted by Representative 

Luetkemeyer .................................................................................................. 169 

Written statement of William M. Isaac, former Chairman, FDIC ...................... 171 

Page

VI 

Munn, Hon. John: 

Written responses to questions submitted by Representatives 

Luetkemeyer and Baca ................................................................................. 173 

(1) 

EXAMINING CONSUMER CREDIT ACCESS 

CONCERNS, NEW PRODUCTS, AND 

FEDERAL REGULATIONS 

Tuesday, July 24, 2012 

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 10 a.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Royce, 

Hensarling, Pearce, Westmoreland, Luetkemeyer, Huizenga, 

Grimm, Fincher; Maloney, Watt, Hinojosa, Baca, Scott, Meeks, and 

Carney. 

Also present: Representatives Schweikert, Sessions, and Green 

Chairwoman CAPITO. The hearing will come to order. I would 

like to first thank my colleagues, Mr. Luetkemeyer and Mr. Baca, 

for their hard work on the legislation before us today. This subcommittee held a hearing last fall on issues about access to consumer credit for borrowers who may not have the ability to use traditional sources of credit. H.R. 6139 is an attempt to address some 

of the potential inequities in the current regulatory structure for 

nondepository institutions and consumers. 

The recent economic downturn and anemic recovery have highlighted the difficult environment for consumers to access credit. A 

recent National Bureau of Economic Research study found that 

nearly 50 percent of Americans are unlikely or unable to raise 

$2,000 in case of an emergency with 30-days’ notice. And we know 

this frequently occurs in many American families, an emergency 

that needs to be addressed. 

Furthermore, the FDIC found that nearly 25 percent of American 

households have trouble accessing credit from traditional sources 

like banks and credit unions. These tough economic times are highlighting, I think, the need for innovation and diversity in financial 

products. Last fall, the subcommittee had a hearing on innovation 

in the consumer credit market. Entrepreneurs across the country 

are developing new and innovative techniques and methods for consumers to access credit from nontraditional sources. Technology is 

providing new ways to analyze data and create platforms to distribute credit in a more cost-effective, transparent manner. 

2 

We have also learned, through a series of hearings on the future 

of money, that it is entirely possible that consumers may become 

less reliant on traditional financial institutions as more payment 

services are driven towards mobile devices. H.R. 6139 is an important part of a broader discussion about how these financial products should be regulated. The majority of these products are currently subject to a patchwork of State regulatory regimes. In some 

States, consumers have access to a broad array of products, whereas in other States, there is little or no access to consumer credit 

from institutions outside of the traditional sources of banks and 

credit unions. 

Title X of Dodd-Frank grants supervisor authority for some nondepository institutions. The legislation before us today creates an 

optional Federal charter for nondepository creditors. They will be 

housed within the OCC. I look forward to hearing our witnesses’ 

testimony on H.R. 6139 as well as the overall need to keep up with 

the innovation in nontraditional financial products. 

I now recognize Mrs. Maloney, my ranking member, for 4 minutes for the purpose of making an opening statement. 

Mrs. MALONEY. I want to thank the chairlady for calling the 

hearing, and I also thank all of our witnesses for being here. I am 

looking forward to the updated version of the bill that my colleagues—Mr. Baca and Mr. Luetkemeyer—have introduced that 

would give non-banks an optional Federal charter, allowing them 

to operate nationally to give small loans. 

I do want to say that this hearing is focused on what is a real 

problem in American society today. The amount of personal family 

debt is growing, credit card debt is over $1 trillion, and student 

loans have surpassed credit card debt. And I would say around the 

kitchen tables of America, many people are just trying to figure out 

how to make ends meet. 

One colleague told me a story about a mother whose car broke 

down. It needed a new transmission, so she needed a loan of $2,000 

to fix her car. So where does she go to get this loan? Most credit 

unions and banks wouldn’t give a loan of that small amount. It 

would be difficult to get. 

So there is a need in our structure for small loans and access to 

them. But until the financial reforms that were enacted in 2010, 

non-banks were exclusively regulated at the State level. But as we 

worked to revamp our financial system, we saw gaping holes in 

regulation and consumers were often on the losing end of the deal. 

The FTC had some oversight for these non-bank loans. 

Now that we have the Consumer Financial Protection Bureau 

(CFPB) with its sole mission of consumer protection across the financial industry, including non-banks, there will be a Federal regulator exercising authority over certain non-banks consulting with 

the FTC. And States like New York will still be able to exercise 

their authority to set a ceiling for consumer protection. 

For example, New York has imposed a usury cap of 16 percent 

on consumer and personal loans. Most payday and low-dollar loans 

are not permitted in the State because they almost always carry 

interest rates higher than 16 percent. However, we cannot deny 

that lower-income and underbanked consumers often turn to shortterm loans to make it to the next paycheck. Some consumers are 

3 

turning to the Internet for these products and to financial entities 

that are located offshore and away from all regulatory scrutiny. 

This is the main argument by proponents of the bill that is before us today, that consumers are turning to offshore entities which 

provide predatory products to consumers who have nowhere else to 

go. The bill we are reviewing today will preempt State laws for an 

entity that wishes to pursue a Federal charter with the OCC. The 

OCC, which is traditionally a safety and soundness regulator of 

banks, would be the principal regulator for these entities, and they 

have expressed some significant concerns about the bill. 

So I hope that this hearing will shed light on the entire question. 

And the questions that I have are: is the OCC the appropriate 

agency to be approving appropriate consumer products for the 

underbanked and underserved communities; and are consumers 

going to be sufficiently protected in creating this charter? So I look 

forward to the comments and to the testimony today. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Luetkemeyer for 3 minutes. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman, and thank 

you for holding this hearing to discuss what I believe is a very important topic: greater access to credit. I also want to thank the gentleman from California, Mr. Baca, for his hard work on this issue. 

He has been a dedicated leader on this subject and I greatly appreciate his efforts. 

At a time when nearly half of all Americans are living paycheck 

to paycheck, we cannot continue to operate without innovation in 

the credit sector. It is essential to begin to understand the true 

needs of American families in trying to address the problems that 

continue to plague them. H.R. 6139, the Consumer Credit Access, 

Innovation, and Modernization Act, will allow for and even encourage the development of new and badly needed financial products. 

And it does so under strict regulatory guidelines without jeopardizing consumer safety. 

Let me be clear, this is not a payday lending bill. In fact, this 

legislation bars new federally-chartered institutions from making 

loans for terms less than 30 days. Again, this legislation prohibits 

payday loans, and other loans with terms of less than 30 days. This 

legislation also requires the OCC to approve or deny any and all 

products and to coordinate with the CFPB, the Attorney General, 

and other State regulators. With that, Madam Chairwoman, I request unanimous consent to insert in the record a letter of support 

and a statement from Mark Shurtleff, Attorney General of Utah, 

and also a letter of support from The 60 Plus Association. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

We can sit here and say that consumers don’t need these products, and we can continue to say that they are aren’t necessary and 

they shouldn’t be permitted, but that simply isn’t a responsible way 

to move forward. These products are needed. Data shows that each 

year, Missourians alone initiate almost 2 million Internet searchers 

for these types of small-dollar loans. Nationwide, that number surpasses 74 million. Our economy and society are moving toward 

doing more and more business online. To facilitate this movement 

in customer preference, we need to provide a structure to allow 

4 

this, as well as safety measures to protect the consumer from unscrupulous practices. 

Mr. Baca and I offer today legislation that will closely regulate 

and monitor institutions and their products, ensuring full consumer 

protection and rigorous oversight by Federal and State entities. 

However, without these products, consumers seeking a small loan 

will be forced to go to offshore lenders in the black market, leaving 

Americans in need with no consumer protections whatsoever. It is 

time to allow all Americans access to safe, closely regulated forms 

of credit. I thank our witnesses for testifying today, and I look forward to the productive conversation. With that, Madam Chairwoman, I yield back. 

Chairwoman CAPITO. The gentleman yields back. Mr. Baca for 3 

minutes. 

Mr. BACA. Thank you very much for having this hearing. I would 

also like to thank the witnesses for being here this morning. I request unanimous consent to insert a letter on H.R. 6139 from The 

Hispanic Institute into the record. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. BACA. Thank you. Just last week, the unemployment rate in 

my district rose to 12.6 percent. Combine that with the constant 

high unemployment across the country, hard foreclosure rates, and 

low economic growth, and you can see why more and more families 

are living paycheck to paycheck. As such, we have seen a credit divide grow deeper between the haves and the have-nots. What happens to the single parent who needs to fix their car? Think about 

that, those who have to fix their cars. What happens to unemployed families in need who need to pay their mortgages or monthly bills for food, heat, and electricity? How do these people deal 

with unexpected high medical bills? 

To make matters worse, many of these people have no access to 

banks or credit unions to provide them with the credit they need. 

Last year I introduced H.R. 1909, which creates a Federal charter for non-bank lenders to provide small-dollar loans to underserved individuals who are in need of credit. And I was pleased to 

work with my good friend, Mr. Luetkemeyer, in introducing a new 

bill, and I would say we both have come together in trying to come 

to a compromise, and a better bill that addresses a lot of the problems, and this is something that has been going on for 3 years. 

In working with him, we wanted to create safe, affordable, and 

innovative products that can be offered to those who need it. And 

those are the important reasons why we came up with this bill. 

H.R. 6139 creates a Federal charter under the OCC, and it will 

allow the OCC and the CFPB to work together to create again a 

safe and affordable credit option for underserved communities. Remember that, underserved communities can create an option. Instead of reinventing the wheel, this bill will work with what we 

have. It creates a Federal charter on unincorporated product institutions that are already in the market, increases access for struggling Americans across the country, and allows for experts innovation that is in the marketplace to grow and serve as many people 

as possible, and also allow for strong Federal regulatory oversight. 

And to those claiming that this is a payday, as my good friend, 

Congressman Luetkemeyer said, this is not a payday bill; it should 

5 

be noted that payday products specifically are banned by chartered 

institutions. Over the past few years, there have been many who 

have made all kinds of points as to why certain products don’t 

work, or why they are predatory or why they only make the products work. The fact is problems were easy to talk about and they 

don’t require responsibility. What we haven’t discussed is a solution, and this is a solution, a solution that will involve, over time, 

recognizing the market, and the industries that are already in 

place, and law for Federal regulations in which all parties are involved. That is why I believe H.R. 6139 provides that solution. And 

with that, I yield back the balance of my time. 

Chairwoman CAPITO. Thank you. 

I would like to ask unanimous consent from the subcommittee to 

allow Mr. Sessions 4 minutes for the purpose of making an introduction. Without objection, it is so ordered. 

Mr. Sessions? 

Mr. SESSIONS. Thank you very much, Chairwoman Capito, and 

thank you for allowing me to sit in with the subcommittee today, 

and I also thank your delightful ranking member and my colleagues on this subcommittee. During my first term in Congress, 

in 1997 and 1998, I had the opportunity to sit on this committee. 

I sat down front, and enjoyed many long debates and opportunities 

to understand the banking system. It has now become the Financial Services Committee, and your leadership, as well as the attention that these Members pay to this, is really very important. 

I also am delighted to be with my dear friend, Ed Royce. I have 

always sat to his left, and somebody made a mistake today and put 

me over here today, and I thank you for that mistake. 

Madam Chairwoman, today I am here to introduce a witness who 

will appear before the committee. I have the privilege of introducing a very successful Texas businesswoman, a great Texan, and 

a constituent of mine, my dear friend, Mary Jackson. Mary is senior vice president of corporate affairs and chief legislative officer for 

Cash America, Incorporated. Cash America is headquartered in 

Fort Worth, Texas, and provides financial products and services to 

consumers across the United States. She is representing her company and the Online Lenders Alliance, known as OLA, an association of U.S.-based online providers of consumer short-term loans. I 

have known Mary for over 20 years. She is a strong leader in the 

north Texas business community and an advocate for the free enterprise system. Mary is here today to testify about H.R. 6139, the 

Consumer Credit Access, Innovation, and Modernization Act of 

2012. 

My discussions with Mary have convinced me there are really 

three truths about this piece of legislation and the need for it. 

First, we have a serious credit gap in America, as has been noted 

by our speakers earlier today. Americans of modest means do not 

have adequate or acceptable access to financial credit products and 

services on a day-to-day basis, especially in the event of an emergency. 

Second, our Federal policies, both the Federal Reserve’s efforts to 

make credit available and reliance on traditional sources, I believe 

have fallen short. The nondepository lenders such as Cash America 

and other OLAs could be a responsible and significant provider in 

6 

this necessary and needed marketplace and could be a part of that 

solution. 

And finally, under H.R. 6139 the proposed federally-chartered 

lenders can and will provide new and innovative products and services, and more importantly, competition in an effort to provide 

more and better credit options to so many hard-working Americans 

who need to access credit and be able to know that they can help 

their families in times of need. 

I appreciate you allowing this hearing to take place today, and 

I thank the gentlewoman and the ranking member for allowing me 

to sit in for a few minutes with this opportunity today to hear 

about this bill. Thank you very much. I yield back the balance of 

my time. 

Chairwoman CAPITO. Thank you. 

Mr. Hinojosa for 3 minutes. 

Mr. HINOJOSA. Thank you, Chairwoman Capito, and Ranking 

Member Maloney. Today, we are discussing whether to give the Office of the Comptroller of the Currency the power to grant Federal 

charters to certain non-bank institutions. While I believe that the 

stated goal of my colleagues to increase the amount of credit to the 

underserved and unbanked populations is noble, and something 

that is necessary, I believe that this bill approaches it from the 

wrong direction, and I warrant to explain why. 

Two years ago this month, we passed the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, which set up the Consumer Financial Protection Bureau, or what we call the CFPB. In 

its 18 months of existence, the Bureau has made great strides in 

writing rules and beginning supervision of the non-bank financial 

institutions that have eluded supervision for so long. 

I believe that to take these particular non-bank institutions out 

of the jurisdiction of the Bureau is premature, and that we should 

allow the CFPB to finish completing its rulemaking on non-bank 

supervision. 

The Office of the Comptroller of the Currency is represented here 

today, and according to submitted testimony that I read, they do 

not support the policy put forth by this bill, which is significant 

considering that they would be the ones in charge of doling out 

Federal charters. 

I look forward to hearing the testimony today. I hope that it addresses some of my concerns for my district and for my State of 

Texas and helps to push the dialogue about how best to serve the 

underbanked and unbanked constituents that I represent. I yield 

back. 

Chairwoman CAPITO. Thank you. 

That concludes our opening statements, and I would now like to 

introduce the first panel of witnesses. 

I will recognize each one of you for purpose of making a 5-minute 

statement. Our first witness is Ms. Grovetta Gardineer, Deputy 

Comptroller for Compliance Policy, Office of the Comptroller of the 

Currency. Welcome. 

7 

STATEMENTS OF GROVETTA GARDINEER, DEPUTY COMPTROLLER FOR COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) 

Ms. GARDINEER. Thank you. Good morning, Chairwoman Capito, 

Ranking Member Maloney, and members of the subcommittee. I 

appreciate the opportunity to discuss the Consumer Credit Access, 

Innovation, and Modernization Act. Providing responsible financial 

services to underserved consumers is an important goal, but this 

legislation would harm minority populations, low-income neighborhoods, and communities with concentrations of our military 

servicemembers. In addition, it would encourage the development 

of businesses with unsafe and unsound concentrations in products 

that have serious consumer protection and safety and soundness 

concerns. 

My testimony provides a summary of our understanding of the 

bill, and gets into greater detail about each of these risks. During 

my remarks this morning, I will highlight just a few of our concerns. First, H.R. 6139 would adversely affect the consumers that 

it intends to help most. This bill would provide special status and 

Federal benefits to companies and third-party vendors that would 

primarily offer credit products and services that carry greater risks 

or cost for consumers who lack access to more traditional bank 

products. We anticipate that such companies will request approval 

to offer products that include payday loans, tax refund anticipation 

loans, and car title loans. Our experience with these products is 

that they depend on high fees, repetitive use, high default, and severely weak legal compliance. 

Consumer interest groups have voiced similar concerns that 

these products trap consumers in a cycle of debt and prevent their 

access to safer, more traditional credit and banking services that 

could better meet their needs. 

We are also concerned that H.R. 6139 would negate many actions 

that Congress, the OCC, and other regulators have taken to safeguard consumers from the risks of these types of products. 

First, this bill prohibits establishing usury caps where otherwise 

appropriate. This prohibition could significantly reduce specific limits established by Congress and many States. For example, it could 

eliminate protection for members of America’s Armed Forces. The 

cap to annual percentage rate of payday loans, auto title loans or 

tax refund loans extended to cover persons at 36 percent. 

Second, H.R. 6139 would create a class of federally-chartered institutions with serious safety and soundness concerns. Our supervisory experience suggests that in addition to consumer protection 

issues, companies chartered under this bill rely on products that 

pose serious compliance BSA/AML and other operational risks. 

H.R. 6139 would direct the OCC to encourage joint ventures between credit corporations and third-party vendors to facilitate innovative products and services. Our experience teaches us that dependence on third-party providers to originate or deliver such products and services can create serious compliance risks. Such vendors 

often lack the requisite systems and procedures to comply with the 

myriad of BSA and AML and other regulations and risk management practices that are essential to the safe and sound conduct of 

8 

these activities. The Comptroller recently singled out weak thirdparty oversight as a significant contributor to operational risk. 

Companies chartered under the bill also face significant BSA/ 

AML exposure, because of their dependence on products with remote deposit capture characteristics, the lack of long-term customer relationships, and the ability of money launderers to exploit 

weaker monitoring and reporting processes. 

In addition, companies chartered under the bill faced significant 

concentration risk because of their limited business models that 

can threaten their viability if underlying market conditions deteriorate. These risks are magnified for firms that lack stable funding 

and depend on non-deposit wholesale funding. Because of these 

risks, these are products and services that the OCC has largely extinguished from the national banking system. And we would not 

support, license or charter an institution concentrating in these 

services today. 

Finally, the OCC agrees that consistent and uniform standards 

provide benefits for both consumers and businesses, but we believe 

authority already exists to achieve these goals. The Dodd-Frank 

Wall Street Reform and Consumer Protection Act authorized the 

Consumer Financial Protection Bureau to adopt standards for financial consumer products and services without regard to whether 

they are offered by banks, non-banks, or State- or federally-supervised institutions. The CFPB has general authority to supervise 

and regulate non-bank lenders, including payday lenders and large 

non-bank participants and consumer credit and services, and will 

be conducting examinations of such companies. 

In summary, the OCC is concerned that H.R. 6139 could have 

unintended and undesirable effects on the population it is intended 

to benefit. H.R. 6139 raises serious consumer protection, compliance, and safety and soundness concerns by creating a national 

charter for companies concentrating on products most prone to 

abuse and that are most often targeted to minority populations, 

low-income neighborhoods, and communities with high concentration of our military servicemembers. 

Furthermore, where the services are offered, State officials and 

the CFPB already have adequate authority to regulate these products and the companies that provide them. The OCC shares the authors’ goal of providing financial services to underserved communities and unbanked populations and we look forward to working 

with the members of the subcommittee to achieve that goal. Thank 

you very much. 

[The prepared statement of Deputy Comptroller Gardineer can 

be found on page 114 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is the Honorable John Munn, director of banking and finance, State of Nebraska, Department of Banking and Finance. Welcome. 

9 

STATEMENT OF THE HONORABLE JOHN MUNN, DIRECTOR, 

BANKING AND FINANCE, STATE OF NEBRASKA DEPARTMENT OF BANKING AND FINANCE, ON BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS (CSBS) 

Mr. MUNN. Good morning, Chairwoman Capito, Ranking Member 

Maloney, and distinguished members of the subcommittee. My 

name is John Munn, and I serve as the director of the Nebraska 

Department of Banking and Finance. It is my pleasure today to 

testify to you on behalf of CSBS. State regulators play a central 

role in overseeing the nondepository consumer credit industries. 

And we appreciate the opportunity to be part of this important discussion. 

I applaud the efforts of Representatives Baca and Luetkemeyer 

and their colleagues to make financial services and products available for unbanked and underbanked consumers. While we recognize that providing these individuals with access to financial services and products is an important objective, we have significant 

concerns about H.R. 1909 and H.R. 6139. 

First, we are concerned the bills would establish an option for a 

Federal business charter without meeting the necessarily high 

thresholds that Congress has traditionally required for receiving 

such a benefit. Historically, Congress has created Federal charters 

only in highly limited circumstances. In fact, most industries and 

businesses—large and small—in the United States thrive and meet 

important consumer needs very successfully without a Federal 

charter. 

Second, the bills would circumvent our ability to establish and 

enforce laws governing the financial services providers. The current 

legal structures governing the types of businesses covered by the 

two bills have long-standing foundations in State law. The citizens 

of each State have determined what financial services companies 

and what products are available to them. 

In my home State of Nebraska, much of the legal structure 

around payday lenders was adopted in the early 1990s. At that 

time, our legislature made the decision to take these businesses out 

of unregulated back alleys and away from loan sharks and to place 

them into regulated storefronts. The result of this action was to 

preserve access to these services and products but with more protection for consumers and accountability for the industry. 

In 2010, Nebraska had approximately 115 licensed payday lenders, and these companies reported a 20 percent net profit after 

taxes. 

Finally, the bills would undermine the carefully structured StateFederal balance in financial services regulation. The State law 

structures and processes governing financial services providers are 

complimented by our Federal partners. These partnerships leverage the benefits and strengths of each side of the relationship. 

States serve as the front-line licensing and regulatory authority ensuring that companies wishing to offer such services meet certain 

minimum requirements and comply with State and Federal laws. 

The Federal component brings a perspective that reinforces without supplanting State authority. 

Members of Congress on both sides of the aisle and in both 

Chambers have repeatedly voted to keep existing State regulatory 

10 

regimes. Unfortunately, both bills run contrary to the goal of StateFederal collaboration and will fundamentally undo our existing 

partnership. As State regulators, we benefit from our proximity to 

the consumer transaction and to the communities served by the financial services providers. We hear firsthand about the regulatory 

burdens, and we see up close the consequences of bad actors. These 

bills take this perspective out of the picture to the detriment of the 

marketplace and of consumers. 

The challenge for policymakers is to create a framework that ensures industry professionalism, accountability, and the proper 

alignment of incentives while avoiding unnecessary regulatory inefficiencies and burdens. For State regulators, regulatory collaboration and coordination have been vital to striking that balance. 

Thank you for the opportunity to appear today. I look forward to 

responding to any questions or thoughts the subcommittee may 

have. 

[The prepared statement of Mr. Munn can be found on page 127 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

That concludes the testimony from panel one, and I will begin 

my 5 minutes of questioning. 

The GAO recently studied depository institutions offering shortterm, low-dollar loans—we all talked about this in our statements—and concluded that these products still are not very widely 

available. Given that many States either directly or indirectly have 

eliminated payday lending, does your agency intend to encourage 

these institutions that you regulate to move into this market and 

meet the rising consumer demand for short-term, low-dollar products? 

Ms. GARDINEER. Madam Chairwoman, the OCC continues to encourage the institutions that we regulate to meet the credit needs 

of low- and moderate-income individuals in this country, and we 

agree that more can be done to achieve that. We encourage them 

to issue affordable credit, and we oftentimes make sure they understand that they can get favorable CRA recognition by doing so. 

However, our concerns with regard to this bill are that in our experience, we have issued guidance because of the concerns and the 

problems we have seen with the harm that these types of products 

have brought to consumers in the past. So we know we can do 

more and more needs to be done and we are certainly willing to 

work with the committee, as well as our State partners and other 

Federal regulators to achieve those goals. 

Chairwoman CAPITO. Mr. Munn, let me ask you, let’s use your 

State of Nebraska as sort of a sample. What availabilities do you 

have in Nebraska that are State-regulated for this type of lending? 

Do you have payday lenders? 

Mr. MUNN. Yes, we have payday lenders. We license small loan 

companies in addition to the 173 banks and 18 credit unions that 

we supervise. 

Chairwoman CAPITO. Do the institutions that you regulate make 

tax refund anticipation loans and those— 

Mr. MUNN. No, they do not. 

Chairwoman CAPITO. So those have been specifically banned 

through State statute? 

11 

Mr. MUNN. Not specifically; I think more because of regulatory 

scrutiny of those practices. 

Chairwoman CAPITO. As a regulator, what product concerns you 

the most in terms of being maybe unfair or difficult for a consumer 

in this high-risk, low-dollar area? 

Mr. MUNN. I think the burden in payday lending improperly 

granted the debt cycle it has created is maybe the most worrisome, 

and the cost that leads to for the individual consumers. 

Chairwoman CAPITO. The loss—most of those loans are supposed 

to be repaid in relatively short periods of time, correct? 

Mr. MUNN. Yes, they are. And while we have a law that prohibits 

same-day transactions as far as going in paying interest and renewing that transaction, often the gap isn’t very far between. Also, 

in Nebraska, you can go to different payday licensees for an additional advance having paid off one payday lender. 

Chairwoman CAPITO. So you could go to one, and then go to another. You can do that in Nebraska? 

Mr. MUNN. Yes, you can. 

Chairwoman CAPITO. I would imagine—I am from West Virginia, 

a small State. We have low socioeconomics in some cases, a lot of 

elderly people. I am certain that is the case with everybody here, 

but you have heard the statistics, and I am directing to both of you 

really, of folks who can’t get a $2,000 loan for whatever, tires for 

the car or anything, a medical emergency. What options—are we 

going to push everybody to the Internet for Internet lending, is that 

something that falls in the bailiwick of this type of regulatory environment? What suggestions can you make to try to solve this problem? 

I know, Ms. Gardineer, you said we are encouraging our institutions to do this, but the reality is I am not sure they really are 

doing it, and if they are, I am not sure that is maybe in the magnitude to solve an issue here. I think we all acknowledge there is 

an issue here. 

Mr. Munn, do you want to start? 

Mr. MUNN. Absolutely. Being from a rural State as I am, which 

I think applies to your State, I think maybe we have better support 

systems in place for those situations, oftentimes in the car repair 

situation you mentioned, the shop doing the repair would allow the 

individual to do it in payments. About 20 percent of our credit 

unions in Nebraska, both federally- and State-chartered, have initiated quick cash programs with an 18 percent interest rate which 

keeps it within our State usury rate, therefore, they have the ability to structure, they will allow up to 60 days, keeps the APR much 

lower than it does when you compute the APR on payday loans. 

Chairwoman CAPITO. Did you have something to add, Ms. 

Gardineer? 

Ms. GARDINEER. Yes, I believe that we all recognize that there 

is a problem here and there is a need for enhanced access to credit, 

but I think that is part of the issue that we see with the bill. We 

have great concerns about increasing consumers’ access to building 

their creditworthiness here. And in many ways, what we see is access to transactions that perhaps provide money, but don’t necessarily provide the credit-building relationship that we think is 

12 

vital to these consumers as they begin to get these small-dollar 

loans. 

Chairwoman CAPITO. I am going to have to stop you there, because I am going to run out of time, I am sure we will get into the 

rest. 

Mrs. Maloney for 5 minutes. 

Mrs. MALONEY. So Ms. Gardineer, you agree that, or rather the 

OCC agrees that there is a credit gap in our country and a serious 

lack of credit access for Americans of limited means? I think you 

both agree that there is, is that an appropriate assessment? 

I would say the OCC and State institutions have a responsibility 

to try to help meet these needs. And Mr. Munn, you mentioned the 

credit unions’ efforts with the quick cash deal. What is the OCC 

doing to help fill that gap? What would you recommend, if you are 

opposed to the bill, how would you recommend that you fill the gap 

for the people who do need access to short-term credit? 

Ms. GARDINEER. I think what the OCC— 

Mrs. MALONEY. To build credit scores, as you said. 

Ms. GARDINEER. In order to help consumers build their credit relationships, I think what we don’t want to see is the unintended 

consequences of the harmful effects that could come from some of 

these products and services that, in our experience, we have seen 

have done more harm than good in helping these consumers meet 

those credit needs. 

So our concern is not that there is a lack of access to low-dollar 

loans. However, we do think that they have to be done in a very 

prudent and safe and sound way, and our concerns are not limited 

only to the consumer protection issues, but we also see the significant concerns we have with the safety and soundness issues that 

come with the offering of these products and services as well. 

As I mentioned in my statement, and as reflected in my testimony, there is a significant amount of oversight required with regard to BSA and AML compliance that oftentimes is extremely expensive and could certainly undermine the economic viability that 

the bill seeks to have these companies achieve in order to be profitable, but meet credit needs of these individuals. 

So again, we want to work with you to look at the innovations 

that could be offered, but we are fearful based on our supervisory 

experience. 

Mrs. MALONEY. You have commented in your statement that you 

want to serve underserved communities and unbanked populations, 

but I am not hearing and you don’t want any abuses, and you want 

to protect them, and you want to help them build their credit 

scores, and I think that is all great, but how? Where does the 

mother whose car broke down and desperately needs $2,000, where 

does she go to get a loan that she needs? Would the quick loans 

that the credit unions have give a loan as low as $2,000? And what 

are the answers, you are saying what you are against, but you are 

not saying what you are for. How do we help this unbanked, underserved, really needy population? 

Ms. GARDINEER. I think that the goal of the bill is to foster and 

encourage the innovative products and services. And we do support 

the goal of that bill. 

13 

Mrs. MALONEY. Do you have any ideas for innovative products or 

services or how we would serve this population, either of you? I 

agree that you want to protect consumers, I am with you 100 percent, and you want to build credit, but you are not saying how you 

would do this, how that would happen. 

Ms. GARDINEER. I think what the bill structure actually anticipates as far as the OCC’s ability to charter and approve these products and services is not to—and I think there may be language in 

the bill that specifically addresses we are not to create these products, but we are to evaluate them, that would be what would be 

asked of the agency. And our concerns, again, Congresswoman, 

that we— 

Mrs. MALONEY. You testified you find them unsafe and unsound, 

but I am looking for solutions. Mr. Munn, would the credit unions 

give $2,000 loans, or do you have any other solutions that would 

be safe and sound? 

Mr. MUNN. No, the largest loan in the program in Nebraska is 

$500 for a 60-day period. 

Mrs. MALONEY. Is that a national program or is that just in your 

State? 

Mr. MUNN. I believe they developed it on their own. 

Mrs. MALONEY. I would say pawnbrokers, too, are a source, 

wouldn’t you say? 

Mr. MUNN. They can be. We do not regulate pawnbrokers in Nebraska. We should give credit to financial institutions we supervise 

for tremendous efforts at financial literacy to try and address the 

problem hopefully before it develops, as low as elementary school, 

and even up through senior citizens’ events. As far as appropriate 

budgeting, savings and also they’re very quick to refer people to financial counselors, if they are unable to assist them with a loan. 

Chairwoman CAPITO. Thank you. Mr. Renacci for 5 minutes. 

Mr. RENACCI. Thank you, Madam Chairwoman, and I want to 

thank the witnesses this morning for being here. Ms. Gardineer, 

you indicated in one of your responses that the OCC encourages 

low-dollar, short-term loans, correct? 

Ms. GARDINEER. Yes. 

Mr. RENACCI. And the Center for Financial Services Innovation 

conducted a study in 2008 that found as much as 75 percent of the 

unbanked and the underbanked population had credit scores that 

would be considered subprime or lack enough credit history to generate any score at all. Do the financial institutions that you regulate which offer short-term, low-dollar loans require the borrower 

to have above-average credit? 

Ms. GARDINEER. I am sure that the institutions that we regulate 

require the consumers to have the ability to repay, and to be able 

to demonstrate that. 

Mr. RENACCI. But if they had below average credit or no credit 

score at all, would those banks that you regulate loan money out 

to those individuals? 

Ms. GARDINEER. I believe I can say we would be concerned with 

that type of lending activity. 

Mr. RENACCI. You would be concerned with that? So how do 

those individuals build a credit score, and at the same time, how 

14 

are they able to borrow the money that they need for short-term 

emergencies? 

Ms. GARDINEER. I think one of the things that we need to do is 

take a more holistic approach to how we deal with this problem. 

And by that, I think we recognize that a lot of these consumers do 

have access to these types of products now, and they are clearly 

regulated by the States. What I think we would like to see is the 

creation—with the creation of the CFPB, there is now a framework 

of a Federal agency that can issue very robust guidelines to lending 

standards that could be applied on a national scale. And by doing 

that, you would ensure that consumers would have the very protections that I think the bill seeks to introduce. 

Mr. RENACCI. I have to interrupt you. Your explanation has nothing to do with how the individuals build their credit score; you are 

talking about the CFPB and standards. We have individuals that 

need dollars today, need to be able to borrow money today, don’t 

have a credit score, want to go to these organizations, and you have 

haven’t answered how they get that money, or how they are able 

to borrow that money. 

Ms. GARDINEER. The lending standards of financial institutions 

regulated by the OCC would require a demonstration of a borrower’s ability to repay, as I said earlier. One of the concerns that 

we pointed out with the bill is not only that consumers have access 

to cash, but begin to rebuild their credit. We have concerns with 

some of the products and services we think we would see from 

some of the companies that would be chartered, such as reloadable 

prepaid cards. 

Mr. RENACCI. I don’t mean to interrupt you, but I only have so 

much time. How about those people who have the ability to pay but 

have low credit scores? I keep getting back to the same thing and 

we keep going off in a different direction. There are some who have 

no credit score but have the ability to pay, and those who have a 

low credit score but have the ability to pay. Does the OCC promote 

those type of loans, for small banks to loan out money? 

Ms. GARDINEER. We encourage our institutions to make these 

types of loans, but there is a regulatory framework within which 

prudent loans need to be made. And we do believe that while meeting the needs of these consumers is paramount to the bill, and we 

certainly support the goals, they have to be done in a prudent manner and in a safe and sound manner. 

Mr. RENACCI. Let’s go to the institutions that you regulate in offering short-term, low-dollar loans, can you tell me has that increased or decreased over the last decade? 

Ms. GARDINEER. I don’t have the data to support that, but I can 

get that and get back to you. 

Mr. RENACCI. Okay. Mr. Munn, quickly, can you comment on the 

importance of being able to share information between regulators 

and securing confidential manner? 

Mr. MUNN. We are in a new environment, especially with the 

CFPB primarily, and the ability to share among financial regulators, both State and Federal, and law enforcement is key, not 

only in Bank Secrecy Act and money laundering efforts, but also 

just in general as to character issues. 

15 

Mr. RENACCI. I have introduced legislation, H.R. 6125, to ensure 

that information can be shared among regulators in a manner that 

ensures confidentiality and privilege protection stay in place. Can 

you give me your thoughts on that, and do you believe it is necessary? 

Mr. MUNN. It is necessary and needed, because there is a wide 

array of regulatory bodies out there now, especially from State to 

State. And having access to information about, especially bad actors, is key to us being effective regulators. 

Mr. RENACCI. Thank you, I yield back. 

Chairwoman CAPITO. Thank you. Mr. Baca for 5 minutes. 

Mr. BACA. Thank you, Madam Chairwoman. Ms. Gardineer, in 

your testimony you raise the objection to a 45-day review period for 

the approved product that the OCC would be required to follow 

stating that it would be too quick to turn around. For chartered 

banks that you currently oversee, what is your typical review process for new credit products and how long does it take—how long 

would you propose the review period be for short-term products? 

Ms. GARDINEER. I think the 45 days is taken in context with the 

language of the bill and the OCC’s expectations in reviewing and 

approving the products. So the bill requires the OCC to make a determination that the products and services would significantly 

harm the interest of underserved consumers, or small businesses, 

which we believe would require us to prove a negative, based on 

activities that have not yet been conducted. Generally— 

Mr. BACA. What proof would you be able to do that in determining that, that it would do harm? You said it would do harm. 

Ms. GARDINEER. That is the standard that is outlined in the bill, 

that the OCC would have to apply in order to disapprove a bill. 

Mr. BACA. We don’t really know if it would do harm or not. 

Ms. GARDINEER. Exactly. So in order to meet that standard in 

evaluating the product or services and the only way that the OCC 

could disapprove any of the products or services offered by one of 

these companies would be to meet that standard, and to meet it 

within a 45-day period. I think the bill provides that if the OCC 

does not act within that 45 days, the product or service is deemed 

to be approved, and at that point cannot only be offered to low-income, underbanked— 

Mr. BACA. Let me ask an additional question. In your testimony 

you infer that under the bill, the lines between the OCC’s authority 

and the CFPB’s authority would be unclear. Doesn’t the bill initially leave the CFPB essentially intact with its consumer protection authority under the Frank Dodd? And moreover, can you point 

to any part of the bill that would allow the OCC to overturn any 

determination made by the CFPB that a product is abusive or 

predatory? 

Ms. GARDINEER. I think what we looked at is the concerns raised 

by the bill in its current form that would require the OCC to create 

disclosure for these types of products. The issue that we see and 

what I addressed in the bill is the exemption for certain types of 

disclosure under the Truth in Lending Act (TILA), which the CFPB 

now administers. And if certain disclosure would not be required 

for the short-term loans that would be part of the offers presumed 

by these companies, then there could be confusion with regard to 

16 

consumers who would not necessarily benefit from the protections 

under TILA for the disclosures of APRs, for example. So those are 

some of the concerns that we referenced in our testimony today. 

Mr. BACA. You also make the point that we should turn our attention to small-dollar loans authorized by Dodd-Frank which, to 

date, has not received $1 of Federal funds or had any funds requested by either the President or Congress. If this program were 

funded, the program would only be successful as much as the appropriated funds allow it to be. And I am not sure if you have been 

aware of the current political debate of the Federal spending has 

not been something that Congress has been able to agree on. Considering all of this, what would be your solution for the growing 

credit divide, and why should the CFPB be able to oversee the Federal charter, even though it is not what they were constructed to 

do? How does a program that has never been funded allow for 

small-dollar loans? And how much Federal funds would it take for 

this program to really make some of the progress in today’s current 

economy? 

Ms. GARDINEER. Congressman, I don’t know how much money it 

would take to make such a program successful. We could certainly 

go back and see if there are folks at the OCC who could develop 

data and we could get back to you on that. With regard to the 

CFPB, what I am suggesting is that the Dodd-Frank Wall Street 

Act created the CFPB and gave them the authority to issue broad 

standards and guidelines that would cover both banking and nonbanking entities. And in order to maintain a level of consistency 

and consumer protection, we believe that robust guidelines that 

would be issued by the Bureau would better help to achieve the 

goals of the bill. 

Mr. BACA. Did my time run out? 

Chairwoman CAPITO. Your time has run out. 

Mr. BACA. Oh, okay. 

Chairwoman CAPITO. Thank you. 

Mr. Royce for 5 minutes. 

Mr. ROYCE. Yes. 

Ms. Gardineer, you mentioned several times in your testimony 

that the OCC has some concerns with this legislation in regard to 

money laundering and the Bank Secrecy Act. It sounds as if you 

are saying that this legislation, which creates a Federal nexus for 

some of these institutions, would weaken certain money-laundering 

provisions, or you have some concerns with that. I wondered if you 

could explain that to me. 

Ms. GARDINEER. Of course. Certain of these products and services 

would utilize products that we believe would facilitate money laundering. In our experience, one of the things we know is that the 

cost of controls, in order to have an effective BSA/AML program in 

a financial institution, is extremely costly. Not only that, there is 

a myriad of oversight that is required to meet the very complex set 

of regulations and rules that have been put into place to protect 

against the BSA/AML concerns. 

This is pretty much echoed by FinCEN, which recently promulgated rules to address prepaid cards, a product that we believe 

would be utilized by many of these companies to offer transVerDate Nov 24 2008 16:07 Mar 28, 2013 Jkt 076120 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\76120.TXT TERRI
17 

actional-type services to the underbanked and unbanked that are 

targeted in the bill. 

Mr. ROYCE. The thing that is concerning, I think, is the presumption that the OCC would not be capable of adequately safeguarding 

this sector when it comes to the anti-money laundering provisions, 

because what we are talking about here is a system of attempting 

to address offshore sites, to address these tribal entities that are 

involved in the business. And, again, it would seem to me that with 

a Federal nexus here, this would give you the wherewithal to monitor this more effectively. 

We currently have a situation where you have offshore companies, you have Indian tribes playing a very large role and an everincreasing role in this sector. So it would seem that, again, giving 

a Federal regulator some oversight, that fact would actually increase the safeguards on this front. 

Today, FinCEN is forced, if you think it through, to work with 

50-plus State regulators, all the State regulators and the District 

of Columbia. That can’t be an ideal structure for trying to detect 

money laundering through the United States. 

In a way, you are arguing against the ability of the OCC to do 

an effective job on this front, and, of course, we had recently in the 

Senate that study about the OCC’s failure in this regard. But I 

would think that in many ways, this would help give you the tools 

to pull that together. 

Ms. GARDINEER. I think the issue that we have identified, Congressman, is not one of our oversight, but it is the issue of expanding the market for these products. By providing this specific Federal charter, you would now be allowing products and services that 

in our experience, we have identified as not only having safety and 

soundness concerns, but consumer protection concerns as well. 

Mr. ROYCE. All overseen by the OCC here. 

Ms. GARDINEER. And my analogy to what you are talking about 

is the issues that we saw growing from the subprime market with 

regard to real estate. Subprime products had been around for 

many, many years, but generally offered to a very niche group of 

individuals. It was the expansion of that product to a broader demographic and across the country that led to a significant downfall 

with regard to the real estate crisis that we saw. 

So the expansion of the products into the marketplace is where 

we ground our concern with regard to the growing AML and BSA 

concerns that we have identified. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Hinojosa for 5 minutes. 

Mr. HINOJOSA. Thank you. 

I thank the distinguished panelists for your testimony. It seems 

to me, just like my colleagues who sponsored this legislation, I am 

concerned about the availability of credit and the type of financial 

products available to our most underserved communities. Hidalgo 

County in my congressional district in deep south Texas has a population of nearly 800,000, and it is the most unbanked county, with 

over 100,000 low-income households, many of whom are unbanked 

or underbanked. I have concerns that stripping the Consumer Financial Protection Bureau of their role to oversee non-bank small 

18 

lenders will dilute their ability to comprehensively protect the 

underbanked and non-banked in my district. Supporters of the new 

proposal argue that it does not in any way remove the authority 

of the Bureau to examine, to issue regulations, or to enforce rules 

regarding these lenders. 

So my question to you, Ms. Gardineer is, do you believe that 

granting the OCC the authority to issue formal approval of these 

consumer products could undermine a later Bureau finding that 

the practices are abusive? 

Ms. GARDINEER. I think that given the current structure of the 

CFPB and its role to evaluate and study consumer products and 

services, it is vital under the Dodd-Frank Act that the CFPB have 

the ability to issue national standards with regard to the offering 

of lending products. This safeguard exists currently today in our 

statutory structure. 

Mr. HINOJOSA. Are you concerned that the OCC does not have 

the resources to provide sufficient oversight of a completely new 

class of financial entity such as small-dollar lenders? 

Ms. GARDINEER. It is certain risks that we have identified that 

we believe with the expansion into the market would do more harm 

than good and create— 

Mr. HINOJOSA. But you don’t understand. We only have 800 people in the Bureau. We need 1,200 to be fully staffed. So that is 

what my question was about, and I didn’t get an answer. 

I have a question for Mr. John Munn. Is there a compelling national interest to establish a Federal charter in this area, and what 

gaps in regulation do you believe this bill is looking to close? 

Mr. MUNN. I see no compelling need for a Federal charter, as 

these bills would basically gut State regulation. We feel we are the 

feet on the ground. 

In regard to the question about the Bank Secrecy Act and any 

money laundering, the information that is used in that pursuit 

flows up from the institutions we supervise, and the majority of institutions are State-chartered or regulated. 

Mr. HINOJOSA. Thank you for clarifying that. 

How does Nebraska’s licensing scheme and enforcement mechanism differ from what would be in place if this bill were enacted? 

Mr. MUNN. We license on a county basis, which gives us a much 

smaller area in which to monitor the performance of a payday lender. We have a limit as to the fees that can be charged: $15 per 

$100. A licensed payday lender may not hold more than two checks 

from an individual at any one time. A check may not be held for 

more than 34 days, and the checks in the aggregate cannot exceed 

$500. 

Mr. HINOJOSA. So how do States differ now in their regulation 

of the non-bank lenders? What kinds of protections are in place 

that could be preempted if this bill were enacted? 

Mr. MUNN. I think those States that have a central registry of 

payday-lending transactions where each licensee needs to forward 

electronically a notation of an advance to an individual would be 

a way in which they can coordinate amongst them so that the use 

of payday lending advances is appropriate. 

19 

Mr. HINOJOSA. My final question: Would the bill undermine our 

States’ authority to license and regulate non-bank financial service 

providers? 

Mr. MUNN. Absolutely. 

Mr. HINOJOSA. I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Luetkemeyer? 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

I would like to follow up for just a second with Mr. Munn. 

So far, Mr. Munn, you have been talking about payday lending 

and H.R. 1909, and none of that is what we are talking about 

today. We are talking about our bill, H.R. 6139, which does not 

allow payday lending, number one. Number two, all of the lending 

that is in there is beyond 30 days. 

So my question to you is, you made the comment a minute ago 

that there is no compelling need in your State for small-dollar lending. Is that what you just said? 

Mr. MUNN. Yes. No, I am sorry, the question was, is there a compelling need for a Federal charter. 

Mr. LUETKEMEYER. A Federal charter, right. But you don’t have 

anybody whose—you don’t allow lending above $500 for small-dollar loans; is that correct? 

Mr. MUNN. As far as payday lending advances, yes. As far as 

small loan companies, they may loan to whatever limit they feel is 

appropriate. 

Mr. LUETKEMEYER. Okay. We have a situation, though, in your 

State, you may not be aware of it, but about 900 people a day go 

online to find other sources of lending. Does that concern you at 

all? 

Mr. MUNN. Absolutely. I am concerned about how do they know 

that they are working with a valid entity on the other end? 

Mr. LUETKEMEYER. Thank you very much. You just made my 

point. I think it is very important that we do that as well, and that 

is what this bill is trying to do. Because what they are doing is 

going offshore. They are going to tribal locations where they are 

loaning online. And what this bill tries to do is allow a Federal 

charter to take those folks into consideration to allow them access 

to that credit so that it can be controlled. And it is not out of—and 

it addresses your concerns and makes sure that it is done in a safe 

and sound way. Would you agree with that? 

Mr. MUNN. How will the individual know, the consumer, when 

they go online, that they are interacting with a licensed supervised 

payday lender? I did a search— 

Mr. LUETKEMEYER. Wait. Timeout. We are not doing payday 

lending. This is not payday lending. 

Mr. MUNN. Is there going to be a prepayment penalty if somebody repays a 30-day advance? 

Mr. LUETKEMEYER. No. There is no prepayment penalty. Have 

you read the bill? There is no prepayment penalty in this. 

Ms. Gardineer, let me talk to you a little bit. Obviously, Mr. 

Munn hasn’t read the bill, so it is going to be difficult to ask him 

any questions about it. 

With regard to you, you keep talking about a number of things 

here that keep going back and forth, back and forth, with regard 

20 

to the issues that we are talking about. First, you say traditional 

banking is not working. You made the comment that you want to 

extinguish small lending from the banking system, yet you want to 

work with our banks to make sure that they can provide for the 

folks who are in need, who are on the line with their lives and 

their livelihoods, who just need a small-dollar loan, yet you have 

no solutions. Your solution was a prepaid card. 

If I am not mistaken, you have to buy the prepaid card with 

money; do you not? 

Mr. MUNN. I assume so. 

Mr. LUETKEMEYER. How does that solve the problem? Mr. Munn, 

I am asking the question of Ms. Gardineer. Thank you. 

Ms. GARDINEER. This was just an example of the types of products and services we believe would be utilized in order to provide 

the loans that are contemplated under the bill. 

Mr. LUETKEMEYER. That prepaid card is not a loan. 

Ms. GARDINEER. No, it is not. 

Mr. LUETKEMEYER. No, it is not. Thank you very much. 

Another question for you. You are talking about a problem building credit history. We had a hearing here not too long ago with regard to the folks who rent to own, and it is very interesting that 

during the course of the discussion, many people testified that to 

rent to own was a great way to establish their credit history to be 

able to go back then and be able to get a normal loan. 

You don’t believe that people being able to get a short-term loan, 

most of whom pay it back—in fact, I was the chairman of the Financial Services Committee when I was in Missouri, and we were 

working very long and hard on all of these small-dollar lending 

folks like this, and we had fewer complaints about them than we 

did the banking industry. Why? Because the people come in, they 

have a particular need, and they go in and address it, and they 

take care of their business. That is the way they establish credit. 

I think that is important, don’t you? 

Ms. GARDINEER. I agree that it is important to establish credit. 

Our experience, however, has shown that the types of products and 

services that the OCC has reviewed and taken great steps to issue 

guidance to protect consumers and enforcement actions to deal 

with the high cost of the fees, the rollover and the unsustainable 

debt that we believe consumers can be trapped in is of a greater 

concern and does not help them build credit. 

Mr. LUETKEMEYER. You keep looking at the glass as if it is half 

empty. I think it ought to be half full. I look at this as an opportunity to help people if it is structured correctly. You keep telling 

me that the OCC can’t do this, it can’t do that; we are looking for 

this, we are looking for that. 

We are giving you the authority in this bill to be able to work 

with the individuals who want to do this type of lending and create 

an environment that will work for not only the lender, but for the 

person who is getting the money as well, and works for you to be 

able to regulate this. The CFPB is involved in this. This is a collaborative effort on all people’s part to be able to offer a product 

that helps everybody in this situation. 

21 

I am really curious, and I have another question in regards to 

safety and soundness, but I will leave that for another day. I see 

that my time is up. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Scott for 5 minutes. 

Mr. SCOTT. Thank you, Madam Chairwoman. 

Here is what I think is wrong with this—that is a challenge with 

this bill. KPMG did a study, a very, very effective study, that said 

that there are 30 million Americans who are either unbanked or 

underbanked, and my problem with H.R. 6139 is that you have in 

this bill a $5,000 unsecured credit limit and a $25,000 secured 

credit limit, both of which the OCC can raise. That is correct; is 

it not? 

Ms. GARDINEER. Yes. 

Mr. SCOTT. All right. Can you explain to me the justification for 

such a high required level of credit? And what about those folks 

who simply need $2,000 or $3,000 and where the bulk of these 30 

million are impacted? How do you justify this high limit? 

Ms. GARDINEER. Congressman, these are issues with the bill that 

we have identified in our testimony. The bill would actually allow 

short-term loans that could be greater than 30 days. They could be 

secured. They could be secured by salary payments, if you will. 

They could be high cost. They could have rollovers. They could, of 

course, increase the cycle of debt, the very thing that we believe is 

not the goal of the bill, but could certainly be the unintended consequence of the bill. 

Again, what we believe we have seen in our experience is a construct of the bill that would essentially require us to charter companies as national consumer credit corporations against—and have 

as a part of those new charters companies against which we already have cease-and-desist orders outstanding for offering the 

very types of products that trap consumers into a cycle of debt that 

we think is more abusive. 

Mr. SCOTT. Could you share with us what potential implications 

would result from this requirement, from this high level? 

Ms. GARDINEER. I think what we see with regard to the high dollar amount is it doesn’t actually achieve the goal that we have 

identified with regard to underbanked and unbanked. There is a 

range here with regard to the dollar amounts, as you have pointed 

out, the $5,000 unsecured, $25,000 secured credit. But in the discussions and the studies that we have read, oftentimes consumers 

are seeking much smaller dollar amounts in order to meet their 

short-term needs. 

Again, our concern is if the goal of the bill is to help consumers 

build their creditworthiness, but these unintended consequences 

that could sustain a cycle of debt with these types of fees is the result, then we haven’t actually achieved the goal of helping the consumer. 

Mr. SCOTT. So you agree with me that this is a major shortcoming of this bill? 

Ms. GARDINEER. I agree. 

Mr. SCOTT. Now, let me ask you about this issue of the overlapping between the OCC and the CFPB. What are your concerns 

22 

there? Isn’t there a danger here that when you have this overlapping, when you bring in another agency and you have one in place 

that is just getting really under way, and we are still faced with 

efforts of trying to disavow that, doesn’t that bring out a sense of 

uncertainty and unpredictability of who is in charge of what, and 

isn’t that another basic flaw in this approach? 

Ms. GARDINEER. I think what would be created under the bill is 

the OCC having the authority to charter national consumer credit 

corporations and to then approve or disapprove, given the standard 

products and services that are presented to it within a 45-day period. That would seem to be in conflict with the current regulatory 

or statutory regime, rather, with the CFPB that has the authority 

currently to issue rules and guidelines that would create national 

lending standards that apply both to banking and non-banking entities and achieve that level of consistency that consumers need in 

order to make informed comparisons about the costs of low-dollar 

credit and the availability of that type of credit. The two agencies 

together, or the OCC having this authority, doesn’t appear to be 

needed, given the authority of the CFPB currently. 

Mr. SCOTT. Thank you very much. 

Chairwoman CAPITO. Thank you. 

Mr. Pearce for 5 minutes. 

Mr. PEARCE. Thank you, Madam Chairwoman. I would like to 

yield a couple of minutes to Mr. Luetkemeyer. 

Chairwoman CAPITO. Mr. Luetkemeyer is recognized. 

Mr. LUETKEMEYER. Thank you, Mr. Pearce. 

I just had a quick question with regards to safety and soundness, 

Ms. Gardineer. You made that comment a couple of times. Can you 

explain how a small-dollar lender has a safety and soundness problem? 

Ms. GARDINEER. I think that the bill actually requires the OCC 

to encourage affiliations with third-party vendors, and as I mentioned in our testimony, the Comptroller very recently made a 

statement about third-party vendor oversight and the problems 

that it raises with operational risks on a safety and soundness 

basis. 

Mr. LUETKEMEYER. You continue to go down this track, Ms. 

Gardineer, of saying, well, we have had this experience, and therefore it is a bad thing. Why don’t we change the way we are doing 

business then and make it a good thing? You have the rule capability. You have the authority, working with the CFPB, to come up 

with new rules, new criteria. If it has to be capitalized differently, 

if it takes new management practices, that is fine. 

But when you say safety and soundness, I have a real problem 

with that comment. As a former regulator, safety and soundness 

has a whole different meaning to me. When you impugn that the 

integrity of the institution is at risk, you are talking about safety 

and soundness. And we are talking about an institution that has 

no safety and soundness impact on this society or this whole regimen as a whole. We are looking at one individual institution that 

may or may not be in compliance, and you have power over that. 

And I keep saying, you keep wanting to not say, well, we can’t 

do a good job of overseeing it. If you can’t do a good job overseeing 

23 

a small-dollar lender, how in the world can you do a good job overseeing Bank of America and JPMorgan? 

Ms. GARDINEER. The issues that I have raised, Congressman, 

deal with the third-party vendors who the OCC would be encouraged to have these— 

Mr. LUETKEMEYER. Ma’am, with all due respect, if you don’t 

want them to hook up with those lenders when they apply for their 

charter, you don’t give it to them. You are in control. You act like 

you have no control over this, and yet this bill gives you the authority to do everything you want. 

I yield back to my good friend from New Mexico. Thank you. 

Mr. PEARCE. Thank you. 

Mr. Munn, you talk about wanting to protect the consumer, and 

the great fault you find with the payday loans or whatever is just 

the charge, right, the amount of the charge; is that it? 

Mr. MUNN. The— 

Mr. PEARCE. So what is your real objection to the payday lending? 

Mr. MUNN. I don’t object to payday lending as a process. It is the 

law of the State, and I enforce State law. So I am neither in favor 

of it nor against it. 

Mr. PEARCE. So you pass regulations in order to control what? Do 

you pass regulations— 

Mr. MUNN. So that the business is in regulated storefronts. 

Mr. PEARCE. So you would control the price of the products; is 

that right? 

Mr. MUNN. That is correct. 

Mr. PEARCE. Okay. And that is basically where you are coming 

from Ms. Gardineer; is that right? 

Ms. GARDINEER. Yes, sir. 

Mr. PEARCE. Now, would you both say that several hundred mil- lion dollars is an exorbitant amount to pay for a $140,000 or 

$150,000 loan, and the cost was several hundred million dollars? 

Wouldn’t you say that is exorbitant? 

Mr. MUNN. Yes. 

Ms. GARDINEER. Yes. 

Mr. PEARCE. There was a guy in New Mexico trying to get a $140,000 loan and couldn’t find it. He just had an idea. He was 

willing to give up half his company stock for the $140,000. No one 

in New Mexico would take it on, so he moved to Seattle, and Bill 

Gates ended up paying somebody a lot of money for $140,000. Now, 

what you all would do is stop that completely, because that was a 

pretty large amount to pay, yet Bill Gates didn’t mind. At the end 

of the day, he came out okay, I think; wouldn’t you say? 

Mr. MUNN. Absolutely. 

Mr. PEARCE. He survived it. 

The question I have at the end of the day is one a constituent 

put to me: If I want to borrow $100 today and pay $120 back at 

the end of the week, what business is it of yours, the government? 

It is a pretty similar question to what Bill Gates would have asked. 

What we are going to do is regulate out the potential for this 

economy to thrive. We are going to regulate out every opportunity 

for anybody who is right now unbanked to find money. We are 

going to do that on credit cards. We are going to do it all the way 

24 

up and down the row. Maybe we should just put out a warning 

that says, if you go out beyond here, you are on your own. We are 

not going to protect you at all. We don’t know what is out there. 

You go here at your own risk. 

But the idea we could regulate every breath that people take, 

every step that they make, every business decision, every crunch 

they get into is one that is doomed to fail. A government that intends to regulate everything has no freedom and no movement. We 

have plenty of examples of those economies in the word. Now, I 

don’t want anybody cheated either, but I also want Bill Gates to 

find his $140,000 when he comes along. 

Thank you. 

Chairwoman CAPITO. The gentleman yields back. 

I would like to ask for unanimous consent to insert a statement 

into the record from Mr. William Isaac. Without objection, it is so 

ordered. 

Mr. Carney for 5 minutes. 

Mr. CARNEY. Thank you, Madam Chairwoman. Thank you and 

the ranking member for having this hearing, and for the sponsors 

of the legislation and the witnesses today for coming to discuss 

what is a difficult issue and a serious problem for so many folks. 

We had in here several months back a hearing with, I believe it 

was the FDIC, who had a pilot program to address the credit needs 

of the unbanked, and I think their target APR was like 38 percent. 

The report that they presented to us that day was that it was a 

miserable failure. They tried to get their member institutions to 

take up that program, and it was quite a failure. 

I spoke to Richard Cordray before he was made the head of the 

CFPB, when he was the Chief Enforcement Officer, about payday 

lending and my concern about consumers and how they were addressed by that. He had field hearings, I understand, after that 

and found that there are a lot of people out there in communities 

across the country who need access to credit. They are not getting 

it from the banking institutions. 

So, there is a real need out there. He said he had heard that. 

I know that all of my colleagues on both sides of the aisle are hearing that as well. So the question gets to be how do we address that 

need? It seems that the banking industry is not doing it, the regular banking industry, if you will. 

Mr. Munn, I know you are here on behalf of, I guess, the Conference of State Bank Supervisors. Are you speaking on their behalf? 

Mr. MUNN. Yes, I am. 

Mr. CARNEY. Was there a process that you all or the organization 

went through to develop your position on the legislation that we 

are discussing today? 

Mr. MUNN. Discussions between regulators, State regulators, 

happened both through CSBS and outside of CSBS, and gradually, 

I think, we have the benefit of understanding what is working in 

other States and what may not be working in other States. 

Mr. CARNEY. So it is essentially the issue of preemption, from 

your perspective? 

Mr. MUNN. Yes. 

25 

Mr. CARNEY. So you are regulating these kinds of lenders right 

now. What are the kinds of problems that you see? 

Mr. MUNN. The problems that we see, we are very restrictive as 

to Internet, access to Internet payday lending. We require that a 

license— 

Mr. CARNEY. By ‘‘we,’’ do you mean in Nebraska or just generally? 

Mr. MUNN. Excuse me, I am speaking in terms of Nebraska, as 

far as we require a physical presence within a State for that licensee to offer Internet payday lending so we have some office 

where we can go to to review the records. 

Mr. CARNEY. Is that typical of other States? 

Mr. MUNN. Yes, I believe it is. 

Mr. CARNEY. What other kinds of things? In terms of—the biggest concern are these short-term loans that translate into an APR 

that we would otherwise think is excessive, but if you are looking 

for that $500 to pay for your new brake job or whatever, you are 

going to pay what you need to do. 

Mr. MUNN. That is right. 

Mr. CARNEY. Isn’t that really the essence of the problem? Is that 

what you see at the State level? 

Mr. MUNN. Each State sets its own caps on it. And, of course, 

there are 16 States that either don’t allow it or have set the APR 

so low that payday lenders can’t make money at it. 

Mr. CARNEY. Is it the APR, or is it the continuing reupping if you 

will, taking an additional—the cycle of debt, if you will, that has 

been described earlier? 

Mr. MUNN. I have not read the Pew study that just came out last 

week, but in reviewing the major points, I think they used the 5- 

month cycle of debt was common for people who go in for one payday advance. 

Mr. CARNEY. Ms. Gardineer, you heard me talk about the need 

for this. What is the alternative? Is there a way to cure the legislation that we have before us, or is there a different approach? You 

didn’t seem to have an answer in response to other Members who 

asked a similar question. 

Ms. GARDINEER. In looking at the legislation and preparing the 

testimony today, we offered our observations on the bill presented 

in front of us. The OCC would be willing to work with any of the 

Members, the committee, and the other Federal regulators to address the needs of short-term credit, but I don’t have today any additional ways that we could do that. 

Mr. CARNEY. I think you may have suggested to try to get this 

population in the regular banking system. Did you suggest that, or 

did I hear— 

Ms. GARDINEER. No. Actually what I said is that I think the best 

oversight that we have in the current structure of the statutes is 

the CFPB’s ability to issue nationwide standards that would apply 

to non-banks as well as banking entities to address the credit 

needs. 

Mr. CARNEY. Thank you. My time is up. Thanks for coming today 

and sharing your expertise with us. 

Chairwoman CAPITO. Thank you. 

Mr. Grimm for 5 minutes. 

26 

Mr. GRIMM. Thank you, Madam Chairwoman. 

Mr. Munn, you just mentioned that you have very robust and 

strict rules about online lending in Nebraska. I just had a question. 

How do you enforce those rules? And let me give you a specific example. I am in Nebraska. I log on. I go offshore, and they send me 

a prepaid card in the mail. How do you enforce that? And they are 

breaking the rules of Nebraska, let us just say, in many ways. How 

do you enforce that? 

Mr. MUNN. Of course, we would not be licensing that offshore 

lender. If the consumer complains about it, we would attempt to 

get to the bottom of the situation that they have put themselves 

in. 

Mr. GRIMM. But in all sincerity, you being in Nebraska, you are 

not going to do anything about that company in Macau? 

Mr. MUNN. We are very limited as to what we can do. 

Mr. GRIMM. Okay. So, again, I just want to emphasize, I think 

it is a little bit misleading to discuss all of the rules and regulations that you have for the Internet when we all know that these 

offshore companies is what we are really trying to avoid in the first 

place. You can’t really do anything whatsoever to stop them from 

doing these loans on the Internet, because unless you plan on monitoring people on the Internet, which we know you certainly are not 

going to do, you wouldn’t even know about it until after the fact, 

until after the damage is done. 

So isn’t there something to be said about limiting or at least trying to attack the problem of all of this offshore lending that is 

going on and get something that is regulated and that we can 

maybe do a better job of? 

Mr. MUNN. As a State regulator, I don’t think we can begin to 

try and regulate foreign companies. 

Mr. GRIMM. Exactly. 

Ms. Gardineer, you mentioned before an analogy with the real 

estate market. First of all—and also safety and soundness, and I 

think it all goes together. Are these institutions, these lenders, are 

they depositories? Because I thought they were nondepositories. 

Ms. GARDINEER. The entities that the bill would ask the OCC to 

charter? 

Mr. GRIMM. Yes. 

Ms. GARDINEER. That is correct. But they could be owned by depositories. 

Mr. GRIMM. Okay. But for the most part, they are not depositories? 

Ms. GARDINEER. They are not depositories. 

Mr. GRIMM. So if they are not depositories, where is that safety 

and soundness issue? Because I have to be honest with you, I don’t 

see it either. Normally in this committee, safety and soundness 

goes to the integrity of the overall banking institution. We are talking about having taxpayers on the hook. If one of these small payday lenders makes loans they shouldn’t make, they go out of business. But it certainly isn’t systemic, or it is not going to affect the 

taxpayers, will it? Can you foresee a situation where it is affecting 

the taxpayers if a payday lender or one of these small lenders goes 

out of business? 

27 

Ms. GARDINEER. The form of ownership can change under the 

bill. So even though these would be chartered as nondepositories, 

I think the bill actually would permit depository institutions, bank 

holding companies, savings and loan holding companies to own 

these types of companies. And at that point, I think that you do 

have the nexus between the depository institutions, the holding 

company structure that could create a safety and soundness issue. 

Mr. GRIMM. Hold on. But under that bill, the OCC can decide 

whether that happens or not, correct? 

Ms. GARDINEER. In the framework of the bill. 

Mr. GRIMM. So the OCC, based on this framework, could prevent 

that. 

Okay. Back to the real estate market. Is that really a fair analogy? In this scenario, we have a lender that is lending money pretty much on the hook themselves. Are they then selling that, packaging it and selling it, to the Federal Government? 

Ms. GARDINEER. I think— 

Mr. GRIMM. The risk? Are they or are they not selling the risk 

to the Federal Government? 

Ms. GARDINEER. I am sorry, Congressman, I don’t think I follow 

your question. 

Mr. GRIMM. The risk of that loan, is it being packaged and sold 

to the Federal Government? These lenders, are they going to package and sell it to the Federal Government? 

Ms. GARDINEER. No, I don’t know that—actually I can’t say, because the products and services would have to be approved by the 

OCC. So the construct of how those services would be offered— 

Mr. GRIMM. Okay. I can assure you that they are not being packaged and sold like—that is silliness. Okay? This is a serious proceeding. The subprime loans were sold to Fannie Mae and Freddie 

Mac, sold to the government, which put taxpayers at massive risk. 

The banks were knee deep in this stuff, and it was a systemic problem that hurt our overall economy. And real estate in my State is 

25 percent of our State economy. This amount of lending isn’t even 

in that regime, and I just think that analogy is simply absurd. 

Ms. GARDINEER. Actually, I think the analogy has some merit, 

because what we are talking about with regard to all aspects of 

lending are the disclosures that consumers need in order to make 

informed choices. And what we saw with the subprime market was 

the expansion of that product to a broader demographic without 

the disclosures with regard to how the products were offered and 

the mechanics of that type of loan. 

Mr. GRIMM. I know my time is up, but the problem wasn’t with 

disclosures; it was that the Federal Government was buying it all, 

so no one cared. 

Thank you. I yield back. 

Chairwoman CAPITO. Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman, and I especially 

thank you for allowing me to continue to interlope, given that I am 

not a part of the committee. And I thank the witnesses for appearing. Let me start with Mr. Munn. 

Mr. Munn, you were asked a question earlier, and you didn’t get 

a chance to respond in terms of your knowledge of the bill. Would 

28 

you like to respond before I go to some other areas in terms of your 

knowledge of the bill? 

Mr. MUNN. Thank you. 

The point has been made more than once that in the bill as proposed, the lenders would not make a loan of less than 30 days. And 

my question was, well, I don’t see any prepayment penalty called 

for, so somebody may go to one of these lenders. They only need 

the money for 7 days, but they are made a 30-day loan with the 

30-day fee, and pay it off in 7 days. From an APR standpoint, that 

increases the APR substantially. 

Mr. GREEN. And does that, in your mind, constitute a penalty? 

Mr. MUNN. A penalty? It would quadruple the annual percentage 

rate, and, of course, that is what we are used to. The terms we 

think of in terms on payday lending is the annual percentage rate 

so that the consumer can shop from one payday lender to the next. 

Mr. GREEN. How many hats are you wearing today? I know what 

your current title is, but in your testimony you seem to indicate 

that you are representing some other entities. 

Mr. MUNN. I represent the State of Nebraska as the director of 

its Department of Banking and Finance and serve at the pleasure 

of the Governor, but then I also appear on behalf of the Conference 

of State Bank Supervisors in which I am actively involved. I also 

represent all State financial regulators on the Federal Financial Institutions Examination Council, an entity created by Congress in 

1979. 

Mr. GREEN. When you are speaking, how do I know when you 

are representing Nebraska or the other entities? Where is the line 

of demarcation? Is there a bright line for me? 

Mr. MUNN. There probably isn’t a bright line. I would think 

today, probably 60 to 70 percent of my testimony was Nebraskabased. 

Mr. GREEN. Let us ask a few questions now about your opinion 

as it relates to the other entities. Has there been a request by 

these other entities to regulate in this area? Are you aware of a request that is being made by entities, Governors, for example? I 

know you are not representing Governors, but are Governors asking for this kind of regulation? 

Mr. MUNN. No, I am not. It is the powers granted to the Consumer Financial Protection Bureau by Congress is where the new 

source of regulation is coming from. 

Mr. GREEN. And as it relates to preemption, your State would oppose preemption, I take it? 

Mr. MUNN. Yes, we would. 

Mr. GREEN. Do you have any sense of how the other States 

would weigh in on the question of preemption? 

Mr. MUNN. I think the States would come down consistently on 

my side, especially when 16 of the States either don’t allow payday 

lending or have set a usury rate such that it is not economically 

feasible for the lenders. 

Mr. GREEN. And for the benefit of people who may not follow 

these issues closely, but may be following this hearing today, explain what preemption means so that people will understand. 

Mr. MUNN. Okay. Preemption means that the Federal law in a 

certain situation is given supremacy over the laws of the State, and 

29 

the State has nothing to say about how—whatever the object of the 

preemption was, the State regulation is cast aside. 

Mr. GREEN. Generally speaking, who usually favors preemption? 

I hate to get you into a political quagmire, but who usually favors 

preemption? 

Mr. MUNN. Generally, companies that want to do business in 

more than one State. However, I am more familiar on the banking 

side. We have banks we supervise which operate in several States 

very effectively because State regulators work together from a 

home State-host State basis. 

Mr. GREEN. Let us talk about persons who are States’ rights advocates. Do they usually favor preemption, persons who are States’ 

rights advocates? 

Mr. MUNN. Not to my knowledge. 

Mr. GREEN. Let us talk about what your knowledge base reveals. 

What does it reveal as it relates to preemption? Persons who are 

States’ rights advocates, would they normally favor this kind of 

thing? 

Mr. MUNN. The subject of the bill? 

Mr. GREEN. No, not the subject, but having the Federal Government decide what States should do, or taking the authority from 

States. 

Mr. MUNN. No, I would think they would naturally be opposed 

to that. 

Mr. GREEN. And my final question will be this: If this is passed, 

will Nebraska have the opportunity to continue to regulate, in your 

opinion, payday lenders, as opposed to what is being now established? There is a new name being given to institutions that will 

engage in this conduct. Are you of the opinion that you will be able 

to continue to regulate payday lenders and other lenders? 

Mr. MUNN. I don’t believe that we would. I think that the current 

payday licensees that we have would probably either be forced out 

of business or would seek a Federal charter. 

Mr. GREEN. So you would be preempted. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

That concludes our first panel. I thank both of our witnesses. We 

will assemble the second panel and begin in a few minutes. 

I would also like to ask unanimous consent to insert a statement 

into the record from Americans for Financial Reform. Without objection, it is so ordered. 

Chairwoman CAPITO. We will have a quick changeover. 

[brief recess]. 

Chairwoman CAPITO. All right. We will reconvene, if I can get 

order in the room. 

I want to recognize each of our witnesses. First of all, I want to 

thank them for coming, and I want to recognize each one for 5 minutes for the purpose of making a statement. 

Our first witness is Ms. Mary Jackson, who was introduced by 

her good friend Pete Sessions, a Member of Congress. She is the 

senior vice president, corporate affairs, of Cash America International, Incorporated. Welcome. 

30 

I would remind the witnesses that you are really going to need 

to pull the microphones close, and make sure they are on so, that 

we can properly hear your statements. Thank you. 

STATEMENT OF MARY JACKSON, SENIOR VICE PRESIDENT, 

CORPORATE AFFAIRS, CASH AMERICA INTERNATIONAL 

Ms. JACKSON. Thank you, Chairwoman Capito, and members of 

the subcommittee. 

I am here to advocate today for consumers. The National Bureau 

of Economic Research released their study citing that about half of 

all Americans couldn’t come up with $2,000 in 30 days to meet an 

emergency. I am sure this is something you are already keenly 

aware of because the study is referring to your constituents. 

I have been an employee of Cash America for over 20 years and 

have watched our businesses grow as community banks have left 

the neighborhoods, and I have seen the improvement in the nonbank lending space, and it is exciting to see the progress of products and better customer service that has evolved. But as with any 

business, there is still room for improvement. 

We have witnessed the explosion of Internet lending. We believe 

the current State laws do not adequately protect consumers, forcing 

them to opt for loans that do not have high-quality standards or 

enough consumer protections. But foremost, we listen to our customers who have consistently told us they need more choices. 

Cash America is an innovative, 28-year-old financial services 

company with over 7,000 employees. We operate with 4,100 licenses in 31 States and adhere to 12 Federal lending laws, most 

notably anti-money laundering, truth in lending, and fair credit reporting. We are a customer service company that hears from our 

customers—such as Regina in Atlanta—who say more options 

would be a great idea that would help a lot of families in need. 

Consumer behavior is changing rapidly with advances in technology, and according to research, global Internet usage increased 

75 percent in the last 5 years and is expected to increase another 

40 percent in the next 3 years. Research also shows that 59 percent 

of the U.S. population banked online in 2010. At Cash America our 

online lending subsidiary, E-Nova International, conducted about 4 

million transactions last year and extended around $2 billion in 

credit. 

A Federal non-bank charter, as outlined in H.R. 6139, would take 

the industry from struggling with 50 different State models to one 

overriding solution that meets consumer needs. The State-by-State 

model is utterly ineffective. We can’t offer the same choices to consumers with identical financial needs because they are separated 

by nothing more than a State line. And in most States, the spectrums of offerings is limited by outdated laws that restrict the 

number of choices available to consumers. 

For instance, in California, if someone needs $1,000, they would 

have to borrow from 4 different payday lenders at $250 each, or 

qualify for a loan over $2,500 and pay back $1,500 immediately to 

get the $1,000 they seek. 

Also, States like Nebraska have not modernized and will not license Internet lenders. Currently, lenders are required to develop 

new products dependent on antiquated State consumer credit statVerDate Nov 24 2008 16:07 Mar 28, 2013 Jkt 076120 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\76120.TXT TERRI
31 

utes that were not drafted for current technologies or online interstate consumer lending. And if we were to apply the same Stateregulated scenario to credit cards, most Americans living in States 

like New York and Texas would not be able to carry a credit card 

due to their State laws. 

More than 60 million Americans are in need of non-bank financial products. We envision under the charter working alongside 

banks, credit unions, nondepository lenders, and others who desire 

to provide credit options for consumers. Even the CFPB has stated 

that achieving solutions at scale requires that we actively engage 

in all sectors. 

What innovative production do consumers need and want? Consumers need amounts from $500 to $5,000, with longer terms of 3 

months to 2 years, and we are committed to providing these under 

the charter. Moreover, we care about our customers, and despite 

recent articles to the contrary, we have no desire to circumvent the 

CFPB’s efforts, and the bill specifically states so. 

We have Federal banks and State banks. We have Federal credit 

unions and State credit unions. We need a Federal non-bank charter and State licensed lenders. The debate over consumer lending 

continues to be volatile, but most ironically, everyone here wants 

the same thing: more quality financial choices in the marketplace 

for hard-working Americans. 

Cash America was built on the foundation of serving people that 

traditional financial institutions have overlooked. We encourage 

you to support H.R. 6139. Let’s modernize our thinking and our 

laws so we can truly meet the needs of those who have the fewest 

options. 

Thank you, Chairwoman Capito, Ranking Member Maloney, and 

subcommittee members. It has been a pleasure to share our 

thoughts with you today. Thank you. 

[The prepared statement of Ms. Jackson can be found on page 

125 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Ms. Frances C. Bishop, the owner of Dollar 

Pawn, Incorporated, on behalf of the National Pawnbrokers Association. Welcome. 

STATEMENT OF FRANCES C. BISHOP, OWNER, DOLLAR PAWN, 

INC., ON BEHALF OF THE NATIONAL PAWNBROKERS ASSOCIATION AND THE ALABAMA PAWNBROKERS ASSOCIATION 

Ms. BISHOP. Thank you. 

Good morning, Chairwoman Capito, Ranking Member Maloney, 

and members of the subcommittee. My name is Fran Bishop, and 

my husband and I have owned and operated Dollar Pawn in 

Haleyville, Alabama, for 24 years. I have also been an active member of the National Pawnbrokers Association and the Alabama 

Pawnbrokers Association, having served as president of both organizations as well as chairing their government relations committees. 

As the old ‘‘What’s My Line’’ game show began with enter and 

sign in, I am a wife, a mother, a grandmother, a pawnbroker, and 

a small business owner. Today, I am here to express the concerns 

32 

of the National Pawnbrokers Association, which is comprised of 

independent, family-owned pawn stores all across the country. 

By point of clarification, none of the large publicly traded pawn 

companies are members of our association. Our small business 

members serve over 30 million consumers’ short-term cash needs 

through face-to-face, nonrecourse pawn transactions. The NPA only 

represents pawnbrokers and no other nondepository industry. 

With the greatest respect to the Members sponsoring H.R. 1909 

and H.R. 6139, these bills provide or even expand access for providers, but are not likely to afford more access for consumers. Specifically, this bill is anti-small family-owned business and favors 

large megaproviders. It is Wall Street versus Main Street once 

again. Its anticompetitive nature is likely to result in fewer providers rather than more. Fewer providers commonly results in 

higher prices. 

These bills preempt States’ regulatory, supervisory, licensing or 

examination powers already in place by State legislatures, or in 

some cases, a vote of the people. Consumers’ credit needs are being 

met in our members’ communities by State-licensed, nondepository 

providers as well as local community banks and credit unions. The 

sky is not falling. 

Another Federal bureaucracy to charter Federal nondepository 

providers is unnecessary. The permanently broad powers a Federal 

charter holder would receive will at best be scantly regulated by 

only one agency, the OCC, which already has its plate full supervising, examining, and enforcing laws regarding national banks 

and federally-chartered thrifts. 

A Federal charter holder would be able to bypass all of the State 

requirements I mentioned previously, as well as TILA, annual percentage rate disclosure, CFPB examination, supervision, enforcement, et cetera; but our members, small businesses, will remain 

subject to all of the above and more that time does not permit me 

to cover here. 

Pawnbrokers are the Nation’s safety net lenders, regulated by 

the States for decades. Regulators rarely receive complaints about 

pawn transactions. We serve our communities and our customers 

well. I urge you to not create an unlevel playing field for our small 

businesses by giving megaproviders access to expanded and largely 

unregulated markets under the guise of access to consumers and 

small business. 

Thank you, Madam Chairwoman, and members of the subcommittee. 

[The prepared statement of Ms. Bishop can be found on page 65 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. John Berlau, senior fellow, finance and 

access to capital, the Competitive Enterprise Institute. Welcome. 

STATEMENT OF JOHN BERLAU, SENIOR FELLOW, FINANCE 

AND ACCESS TO CAPITAL, THE COMPETITIVE ENTERPRISE 

INSTITUTE (CEI) 

Mr. BERLAU. Thank you, Madam Chairwoman, Ranking Member 

Maloney, and honorable members of the subcommittee. Thank you 

33 

for this opportunity to present testimony on behalf of my organization, the Competitive Enterprise Institute. 

This story also shines light on one of the most untold stories on 

the workings of Congress, and that story is that sometimes Members of Congress actually are working together and finding common 

ground on legislation, legislation that would pare down excessive 

regulations that block stable and transparent sources of credit and 

capital for both consumers and entrepreneurs. 

My organization, the Competitive Enterprise Institute, is a 

Washington-based free-market think tank that, since its founding 

in 1984, has studied the effects of all types of regulations on job 

growth and economic well-being. My title at CEI is senior fellow for 

finance and access to capital, and to increase access to credit and 

capital, CEI proposes a public policy strategy that can best be described with a phrase sometimes associated with energy exploration, ‘‘all of the above.’’ 

Banks, credit unions, and non-bank lenders all have a role to 

play in expanding credit for responsible consumers and entrepreneurs, and all should be able to operate free of excessive regulation. That is why we supported the regulatory relief in the recently 

enacted and bipartisan Jumpstart Our Business Startups Act for 

community banks to allow them to more easily raise capital and 

seek investors, it is why we support bipartisan legislation allowing 

credit unions to make more business loans, and it is why we support the subject of this hearing, H.R. 6139, giving non-bank lenders 

the same opportunity to offer financial services through a national 

charter similar to the system that banks have had for 150 years. 

Now, my organization, the Competitive Enterprise Institute, has 

actually long supported optional Federal chartering as part of our 

goal of what we call competitive federalism. As our Chairman Michael Greve has written, real federalism aims to provide citizens 

with choices among different sovereigns and regulatory regimes. 

And all this bill would basically do is for the unsubsidized nonbank lenders who aren’t taking deposit insurance, aren’t a risk to 

the taxpayers, to create a similar system of optional Federal chartering that has existed for banks for almost 150 years at the very 

same agency, the Office of the Comptroller of the Currency. 

It was in the Civil War that the National Bank Act was enacted, 

and many banks have chosen to stay with State regulators. But 

competition from federally-chartered banks has lowered the cost of 

credit and capital for everyone, and I think a similar reduction in 

the cost of credit and increase in access to credit could occur under 

a system of optional Federal chartering for non-bank lenders to 

work to the benefit of both consumers and entrepreneurs. 

I want to point out that research on entrepreneurship from the 

Kauffman Foundation and other respected sources, as well as some 

prominent specific examples, shows there is much less of a gulf between personal credit and business credit than some policymakers 

may believe. Sergey Brin, for instance, started what is now Google, 

Incorporated, as a college student, using a personal credit card. 

Spike Lee financed some of his first films by maxing out his credit 

cards. And the Kauffman Foundation has found that nearly half of 

entrepreneurs use personal credit cards, and there is also evidence 

that entrepreneurs utilize non-bank lenders more typically associVerDate Nov 24 2008 16:07 Mar 28, 2013 Jkt 076120 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\76120.TXT TERRI
34 

ated with consumer borrowing. Former Federal Reserve Senior 

Economist Thomas Durkin has written that—and has found that 

small independent businesses, seasonal businesses such as landscaping, plumbing, and handyman services, may use auto title 

loans as a source of short-term working capital. 

H.R. 6139 would broaden these options and lift barriers to loan 

innovations such as short-term loans, and would have longer-duration installment loans specifically suited to small entrepreneurs 

and to many consumers. 

Thank you so much again for inviting me to testify, and I look 

forward to answering your questions. 

[The prepared statement of Mr. Berlau can be found on page 58 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Mr. Kenneth W. Edwards, vice president, Federal affairs, the 

Center for Responsible Lending. Welcome. 

STATEMENT OF KENNETH W. EDWARDS, VICE PRESIDENT, 

FEDERAL AFFAIRS, THE CENTER FOR RESPONSIBLE LENDING (CRL) 

Mr. EDWARDS. Thank you. Chairwoman Capito, Ranking Member 

Maloney, and members of the subcommittee, thank you for inviting 

me to testify on better understanding of the regulatory regime for 

nondepository creditors and my views on H.R. 6139. 

I currently serve as vice president of Federal affairs at the Center for Responsible Lending, a nonprofit, nonpartisan research policy organization dedicated to promoting and protecting homeownership and family wealth by eliminating abusive financial products. 

In my testimony today, I would like to emphasize the following 

three points: Point number one, H.R. 6139 would circumvent the 

CFPB’s carefully contemplated supervisory, enforcement, and rulemaking authority over certain nondepository financial institutions. 

The CFPB is the primary Federal regulator with explicit authority 

over large nondepository institutions and certain nondepository entities, including payday lenders. Title X of Dodd-Frank tasks the 

Bureau with consumer protection through rulewriting supervision 

and enforcement to ensure that markets allow borrowers to gain 

access to and choice among financial products and services that are 

fair, transparent, and competitive. 

In just 1 year, the CFPB has begun to create sensible rules of 

the road for financial markets through a balanced and level regulatory playing field for market participants. Without such evenhandedness, consumers would be exposed to a financial marketplace rife with the very kinds of abuses that led to the financial 

crisis. The CFPB supervisory purview over nondepository entities 

is prudently designed to improve the quality of financial services 

in this sector and enforce Federal consumer financial law. 

Point number two, H.R. 6139 would expressly allow nondepositories to evade 230 years’ worth of State consumer protection laws, 

licensing, and supervision that are essential to protecting vulnerable consumers from abusive financial practices. 

Under H.R. 6139, nondepository charter holders would be able to 

offer financial product terms that some States have either expressly prohibited or heavily regulated; for instance, high-cost payVerDate Nov 24 2008 16:07 Mar 28, 2013 Jkt 076120 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\76120.TXT TERRI
35 

day loans. Marketed as short-term relief for a cash crunch, payday 

loans typically carry annual interest rates of around 400 percent 

and create long-term debt traps for working people. The loan structures ensure that the vast majority of borrowers cannot pay off the 

loans when due without leaving large gaps in their budgets. As a 

result, borrowers are forced to take out new loans after paying the 

first one back. 

States are the traditional regulator for most small-loan products, 

including payday loans. In fact, State limitations on interest rates 

have existed for over 200 years. However, since the mid-1990s, payday lenders affirmatively sought and were often granted special authority to charge over 300 percent APR on their loans. Since 2005, 

a countertrend developed, and no new State agency has granted 

payday lenders or other short-term lenders their needed exemption 

from traditional small-loan laws and other regulations. 

Despite the harmful impacts of payday lending and the States’ 

efforts to rein in the financial abuses associated with this form of 

small-dollar credit, H.R. 6139 would permit credit companies to circumvent State laws and would prohibit the Federal financial consumer watchdog, the CFPB, from acting to protect borrowers from 

harmful products. 

Point number three, H.R. 6139 would roll back important Federal credit protections for consumers. Since 1969, the Truth in 

Lending Act has required creditors to disclose finance charges and 

APRs before consumers sign a loan as a baseline cost-credit comparison measure. 

Payday loans, for instance, are also subject to TILA’s credit disclosure requirement, and as a result, consumers are afforded an accurate way to gauge the true costs of lending across products. H.R. 

6139 upsets this long-standing Federal consumer protection by exempting credit companies from this APR disclosure. This would result, of course, in a significant marketwide rollback of Federal credit law. 

In conclusion, we believe that this legislation would directly 

harm vulnerable borrowers, particularly the underserved, and 

should be opposed. 

Thank you again for the opportunity to testify, and I look forward to answering any of your questions. 

[The prepared statement of Mr. Edwards can be found on page 

74 of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

And our final witness is Mr. G. Michael Flores, chief executive 

officer, Bretton Woods, Inc. Welcome. 

STATEMENT OF G. MICHAEL FLORES, CHIEF EXECUTIVE 

OFFICER, BRETTON WOODS, INC. 

Mr. FLORES. Good afternoon, and thank you very much, Chairwoman Capito, Ranking Member Maloney, and members of the 

subcommittee for the opportunity to testify today on a topic of 

growing concern to many in this room, and one that I have followed 

for several years. My firm provides management advisory and research services to banks, credit unions and alternative financial 

services providers. With more than 30 years’ experience, I have 

witnessed the evolution of the financial services marketplace. In 

36 

2008, this country woke to the worst economic crisis since the 

Great Depression. I belive we have now reached a decision point 

on how to deal with the credit needs of the 60-plus million Americans marginalized by the traditional banking model. 

Based on my most recent study, ‘‘Serving Consumers’ Needs for 

Loans in the 21st Century,’’ I would argue that consumers, notably 

those in the low- to moderate-income range, would stand to benefit 

from a new financial paradigm that recognizes the potential of alternative financial services providers. Many, but certainly not all 

of these consumers are part of the 60 million Americans who are 

either unbanked or underbanked. In addition, there is a growing 

class of moderate to middle-income consumers who have chosen to 

leave traditional banking because of increased fees or because they 

need an unsecure personal loan, a product no longer offered by 

most traditional banks. 

Access to credit has been an ongoing problem that has worsened 

with the times. Difficulties of underbanked and unbanked consumers to obtain smaller dollar loans has been the subject of increasing debate, including in a number of Congressional hearings. 

But it is not just about low- to moderate-income consumers, because the fact is that bank customers, many of what you and I consider healthy bank accounts, are coming up short as well. 

Since the 1980s, banks have used credit card lines, home equity 

lines, and overdrafts to provide consumer credit. These are now 

less viable due to the poor economy and increased regulations. 

Overall, the community banks’ focus on consumer lending has declined significantly since 1985 according to the FDIC. And during 

that period, unsecured installment loans have all but disappeared 

from bank product suites, due to profitability, risk, and regulatory 

concerns. 

Today, loans under $5,000 are all but non-existent, and with 

good reason. Given the legacy cost structure and slowed option of 

new technology, many banks aren’t capable of properly making 

loans under $5,000. New Federal regulations and increased compliance costs are causing banks to examine their customer base. As 

my study details, the traditional banking business model relies on 

scale to be profitable. According to JPMorgan Chase, about 70 percent of customers with less than $100,000 in deposits and investments will be unprofitable. 

Given the level of investment required to succeed in the 21st 

Century, it is only rational that banks target their most profitable 

customer segments. The potential fallout is significant and will 

likely add to a further retraction in the credit market. Limiting 

consumer and small business credit also has a detrimental effect 

on local economies. 

Consumer financial services are clearly at a crossroads and I believe that a new financial regulatory structure is warranted. The 

answer points to the capabilities of alterative financial services providers; many have invested in more efficient and cost-effective technology, but costs associated with regulatory variations in 50 States 

inhibit their ability to offer a range of standard products, particularly in the $750 to $5,000 range. Differing State regulations deny 

alternative financial services providers the ability to achieve scale, 

reduce cost, and thereby pass on the savings to the consumer. 

37 

Studies of the impacted restricted regulations and other industries, most particularly the lack of Federal preemption, repeatedly 

shows that these very State regulations limit options and increase 

costs to consumers. There is room for both Federal- and State-approved lenders, as it is a model for State and national chartered 

banks. 

I would further argue that the lack of standard product nationally, in and of itself, creates disparate impact on consumers. That 

is, nothing more than a State line can cause consumers to meet 

their specific credit needs with less than optimal and more expensive alternatives. I believe this bill will move us from the status 

quo, and we need to move from the status quo, we have been talking about it, identifying the problem, but we have yet to act upon 

any solutions. I think this bill will help bring relief to millions of 

American consumers. Thank you for your time, and I would be 

happy to answer any questions. I would like to submit my study 

for the record. 

[The prepared statement of Mr. Flores can be found on page 80 

of the appendix.] 

Chairwoman CAPITO. Thank you all very much. I would like to 

begin the questioning. Ms. Jackson, just a point of clarification 

here on this bill. You mentioned several States, I believe mine is 

one of them that does not do, or at least it does not permit payday 

lending. It was a Federal floor here that such is proposed with a 

bill, would that statute be preempted by this? So it could go forward in all 50 States? 

Ms. JACKSON. The premise of the bill is basically to allow longerterm installment type loans in the marketplace. So States like 

West Virginia that have a usury cap where citizens are going online and getting either payday loans or a form of installment loans, 

yes, we would, as a federally-chartered enterprise, be able to compete with the offshore lenders to deliver products that do have consumer protections, that do have oversight and give consumers a 

choice. 

Chairwoman CAPITO. So, that is a yes. Then, would the State legislature, in your opinion, be able to come in and override that federally-chartered provision? I would suppose, no. 

Ms. JACKSON. I believe with the way credit cards are treated in 

this country and other banking products, that we could be working 

with State regulators on some of those solutions. There are some 

exceptions. The Credit Card Act and the way credit cards are processed in certain States, but it doesn’t prohibit the basic tenets of 

a credit card to be available to consumers in those States. 

Mr. BERLAU. Congressman, if I may, it would only—the entities 

would only get the exemption if they applied and met the standards of the Office of Comptroller of the Currency prescribed under 

the bill, similar to the system of State and national banks where 

a bank can choose to be regulated by the Federal or by the State 

government. 

Chairwoman CAPITO. Right, so the OCC would—that determination would then allow people to override the prerogative of the 

State legislature. 

38 

Mr. BERLAU. But if it chooses not to, or the OCC decides it does 

not meet their standards, then yes, all the West Virginia rules 

would still apply. 

Chairwoman CAPITO. Ms. Bishop, you mentioned and launched 

concerns in your testimony that this would disproportionately favor 

large entities, and you mention that yours was not one of those. So 

in your State, what is the situation now? Who are you competing 

against? Are your customers the same? And has your customer 

base changed over the last 3 or 4 years? Who are you competing 

with as your customers changed, and who are you competing 

against? 

Ms. BISHOP. Speaking to the pawn industry, which is what my 

business is and the association I represent, I continue to compete 

with other pawnbrokers down the street, or in the next town or 

what have you. We also—payday lending is allowed in Alabama, it 

is regulated also by the same State banking department which also 

regulates the pawnbrokers, small loans, mortgage brokers and so 

forth. So that— 

Chairwoman CAPITO. Do you feel like—not to interrupt, but I 

have a little—do you feel like you are serving the same customers? 

Ms. BISHOP. No. 

Chairwoman CAPITO. And then on the other one, has your customer base changed over the last 4 years with the downturn of the 

economy, is it broader or has it basically stayed steady? 

Ms. BISHOP. It has broadened somewhat, not only just with the 

downturn in the economy, but other economic situations with, for 

instance, the price of gold, which is higher than it has been in 

probably who can remember when. That has brought an additional 

segment of customers in who can use that asset as collateral for 

their tangible personal property loan. 

Chairwoman CAPITO. Mr. Flores, a consumer who does not have 

enough money in their checking account, or even if they don’t have 

a checking account, they have an option, or in their checking account, they could bounce a check, use overdraft protection, get a 

payday loan, pay the bill late or borrow from another institution. 

Why would consumers pick one of these—I am going to postulate 

the reason they pick one over the other is it is the one they can 

get and they can get to, and sort of get them over the hump until 

they can solve whatever problem, the electric bill or whatever. Do 

you have an opinion on which one of these, because they all come 

at a relatively high price, or gaining momentum or losing momentum or why a consumer would choose one of these over another? 

Mr. FLORES. There is a continuum of need, and I break it down 

in my report, unanticipated needs for short-term dollar amounts, 

and overdraft coverage, which is much less expensive than bouncing a check with associated fees and late charges, et cetera. A payday loan is less expensive than an overdraft, if you look at what 

the average overdraft amount is and overdraft fee, the installment 

loan meets that longer-term need for a higher ticket item, that 

$2,000 to $3,000 that we are talking about that really is not available out there and hasn’t been since the old finance companies of 

the 1970s or 1980s. 

Chairwoman CAPITO. I bought my refrigerator with one of those, 

30 years ago. 

39 

Mr. FLORES. So I think we need to give the consumer a lot more 

credit than we do. Their need to manage their finances down to the 

last penny, they know how to do that and they look for the best 

options available to them. So the more options we can give them, 

ultimately the less cost they will incur to meet these needs. 

Chairwoman CAPITO. Thank you. Mrs. Maloney? 

Mrs. MALONEY. Thank you. I think we all agree that there is a 

need for small loans. And the supporters of the bill argue that they 

are not there, so therefore they are going on the Internet, they are 

going offshore, they are getting these loans that are more predatory 

with higher interest rates. And I would like to ask the panelists if 

they have any research, or Mr. Flores, if your report touched on 

this area, or Mr. Edwards, or Mr. Berlau, and your comments, Ms. 

Bishop, if you could tell me how widespread pawnshops are, are 

they in every single community, all across rural, every State, whatever? But my primary question right now is the question on the 

statements by some earlier that people are going on the Internet 

to get loans in order to get this refrigerator, or get that car fixed, 

or whatever it might be. And Ms. Jackson, if any of you or all of 

you would comment on whether that is widespread or whatever. 

I am going to start with Mr. Flores and just go down the panel. 

And if you would like to comment on what your research is or your 

understanding of the use of the Internet to address these needs? 

Mr. FLORES. I did a research report on overdrafts a few years ago 

comparing other short-term alternatives. The demand was upwards 

of $100 billion a year for this money, and the demand is not going 

away even though some States had legislated products away from 

it. 

Mrs. MALONEY. Are they going on the Internet to get this loan? 

Mr. FLORES. Absolutely. They are looking at whatever option is 

available, and the Internet is a growing option. It is very convenient, they don’t have to go search for a storefront. And I think a 

key point to remember is that this market is growing, that the 

Washington Credit Union League estimates a 2.8 million a year increase in their unbanked and underbanked communities. 

Chairwoman CAPITO. Thank you. Mr. Edwards? 

Mr. EDWARDS. Thank you, Chairwoman Capito. If I could just respond to the previous comment of Mr. Flores, payday loans and 

overdraft fees are not interchangeable. The first payday loan may 

be an initial choice the consumer makes. But the structure and 

unaffordability of that first loan results in a financial debt trap for 

subsequent payday loans. With respect to an overdraft fee, the research indicates that it is unintentional. And the typical overdraft 

fee is about $34 for, let’s say, maybe, a $17 overdraft. We are talking about servicing the unbanked and underbanked. And we have 

research that shows that a leading cause of people to become 

unbanked or lose their bank accounts is because of the excessive 

cost associated with overdraft fees. So I would disagree that payday 

loans and overdraft loans are somehow interchangeable and alternate forms of small-dollar credit. 

With respect to research, the Pew Foundation recently released 

a report that sampled about 100 would-be borrowers and asked 

them, it was 100 would-be borrowers that are located in States that 

either heavily regulate payday loans, or completely outlaw payday 

40 

loans. And out of that 100 borrowers, 95 of those did not to go online lenders and only 5 of those did. So what that shows is that 

there is an actual low percentage of a low number of borrowers 

who are actually seeking out online payday loans in instances 

where the storefront payday lenders are actually outlawed. 

Mrs. MALONEY. Thank you. Mr. Berlau? 

Mr. BERLAU. Yes, I think that is such a good question. What are 

the alternatives if you restrict credit or don’t allow new forms of 

credit, so thank you for asking that, Congresswoman Maloney. And 

I am going to dispute my fellow witness, Mr. Edwards. I think the 

evidence does show that overdraft fees are and late fees and 

bounced checks are frequently a substitute for payday loans, unfortunately. I reference in my written testimony the Federal Reserve 

of Kansas City’s Senior Economist Kelly Edmiston and others who 

have written about that, in States with highly restrictive laws as 

far as credit and payday loans. 

Mrs. MALONEY. Thank you my time is almost up. Ms. Bishop, or 

Ms. Jackson? 

Ms. BISHOP. My research is behind my counter every day, serving the needs of my customers and consumers. But I have a question, and that is, whatever type of online loan we are talking about 

here, I don’t care, payday, small, whatever, if there is a national 

Federal charter that is applied for by companies that are legitimate, and that are trying to do the right thing. The ones in Macau 

are not going to apply for that. And the consumer is still not going 

to know who they are dealing with. When you go to the Internet, 

you all know that this pops up here, that pops up there, and people 

have the tendency to click on them. Sometimes, it clicks on itself 

for you. People who are not legitimate are not going to get that way 

because of a Federal charter. 

Ms. JACKSON. Mrs. Maloney, if I may, we are the largest online 

lender here domestically, and we offer State-by-State options for 

consumers. We are attempting to do better. We would like to offer 

longer-term loans. We have scoured all 50 States to see where that 

is feasible, and there are about 15 States where we can offer a 

longer-term loan. Right now, you asked about the size of the marketplace, 61 percent of online small-dollar loans are done by nondomestic players, and that is only going to continue to grow. 

So in order to protect consumers, to let them know that they are 

dealing with an OCC-regulated Internet company where there is a 

place to call if they have concerns with the CFPB, or the OCC, that 

is what we are trying to accomplish here today. 

Chairwoman CAPITO. Thank you. Mr. Renacci? 

Mr. RENACCI. Thank you, Madam Chairwoman. And I want to 

thank the witnesses. Just a couple of comments I heard while you 

were talking. Mr. Flores, you said we need to give the consumer 

credit for making these decisions that they make as far as shortterm loans. Mr. Edwards, you said payday loans are a choice consumers make. It is interesting because I took the time to actually 

go talk to those individuals who are going to these payday loans 

and using this service and using this product. These are everyday, 

hard-working Americans who are just short on cash, not on a regular basis, sometimes just on an emergency basis, who really appreciate the service, they want this service, they really don’t want 

41 

the government meddling in it much more. They are happy with 

the service that they have right now. 

I was interested because if you spend a half hour just talking to 

the consumers as you said who make these choices, and as Mr. Flores said, give them the credit to make those choices, I am concerned in your conclusion, you said indeed this legislation—and 

this is to Mr. Edwards—indeed this legislation offers nothing beneficial for consumers. On the contrary, it would lead to direct consumer harm. Can you explain that? 

Mr. EDWARDS. Sure. And let me just make sure I clarify with respect to my previous comments regarding the choice. That is within 

the context of looking at payday loans with respect to overdraft 

fees. Overdraft fees research has shown are unintentional, and I 

want to make sure we are clear with respect to the distinction I 

was drawing there. 

In terms of the harm, if you are talking about consumers who 

are in financially fragile households, who are often living from paycheck to paycheck, the purpose and intent of this legislation draws 

that demographic. These are people who can ill-afford to be trapped 

in long-term debt. 

If they are taking out financial services, and research has shown 

that they are doing it nowadays to cover actual everyday living expenses like rent or utilities, if they are doing that and they are 

standing in debt about 5 or 6 months per year, taking out maybe 

8 loans if we are just talking about payday loans, for instance, that 

is problematic. It doesn’t do the consumer any good because they 

are constantly either flipping that loan, paying off the loan and 

taking out a new one. That puts them in a cycle of long-term debt, 

and that is a huge problem. And I don’t think that would be do a 

consumer any good. To be quite frank, it is a concern, you can even 

argue, of national interest. 

Mr. RENACCI. That is interesting, Mr. Edwards, because you are 

talking for the same consumer that I talked with who said that 

they appreciated that loan, and that they were very happy to have 

it. So sometimes—when I get back in the district, they talk about 

how Washington is disconnected. Sometimes, we just have to go 

and listen to the people using the services. 

Mr. EDWARDS. But Representative, if could I interrupt for a second, the consumers that you are talking to and they say they appreciate those loans, I would be curious to know the follow-up question, if they appreciate being charged sometimes in certain instances triple digit APRs if you look at it, and then being associated with the fees that they have and standard debt for quite some 

time, I think the answer might be a little bit different. 

Mr. RENACCI. I will tell you what the answer is, because one of 

them said to me, would you be willing to give me $100 if I gave 

you $107 back in a week? And it is an interesting response that 

you have to think about. Because we talk about this high APR, but 

we are talking about short-term loans, and how many people are 

willing. Some of these people do have low credit, so I think when 

you talk to them you will find out, you will get some interesting 

answers. 

Mr. Berlau, I guess I am a little concerned, and I want to see, 

do you have any concerns that the CFPB may take steps to even 

42 

further constrain the offering of short-term, low-dollar loan products? 

Mr. BERLAU. Yes. As a matter of fact, I do have concerns about 

that. We are—I should say that my organization is involved in a 

constitutional challenge to the CFPB because we think the structure lacks accountability. But as far as this bill goes, and some of 

the other concerns about it, I think that it makes clear that this 

doesn’t affect for good or ill what the CFPB is planning to do; it 

is just another alternative to offer these loans, and then the CFPB 

would have final say. 

So yes, I am, but this bill doesn’t address that, but it does do 

very good things as far as creating alternatives, which then the 

CFPB would be able to have a say on as well. 

Mr. RENACCI. Ms. Jackson, do you feel whether it is the CFPB 

or the States if they further restrict this type of credit, that it will 

be more difficult for these individuals that I talked with to obtain 

short-term credit? 

Ms. JACKSON. We have seen real evidence that attempts to limit 

rates, attempts to limit usage, have just exploded the illegal or unlicensed lending market. We saw that with military lending which 

was mentioned here earlier today. We cannot make loans to the 

military because the rates are so low. And what happened is military members would go online and get loans from offshore lenders. 

So we would like to be able to, again, have safe and sound lending requirements, but you can’t do it when the rate gets so low. 

Also in California, they passed an installment loan law which was 

great, but there has only been one license application since because 

the rate was too low. So again, back to my scenario, what do you 

do if you need $1,000? Residents from California still have to go to 

payday lenders, or go find a higher level loan or pay back an 

amount right away. So we put consumers at a disadvantage when 

we try to protect them. 

Mr. RENACCI. Thank you, I yield back. 

Chairwoman CAPITO. Mr. Watt? 

Mr. WATT. Thank you, Madam Chairwoman. It seems to me that 

we are having two discussions here, one of which I am not sure 

why we are having it. I am not sure I understand how subjecting 

something to Federal regulation is going to increase credit availability; that is one question. Mr. Renacci raised an interesting 

point about government meddling in their choices. Most of my constituents would rather have the State government meddling in 

their choices than they would the Federal Government meddling in 

their choices. And this bill proposes a Federal charter that preempts State law, which makes me raise the same concerns that I 

raised when we were debating the Rent to Own legislation in this 

committee. 

I just don’t understand the rationale for it. And I understand the 

rationale for it even less now that we have passed Dodd-Frank and 

have a Consumer Financial Protection Bureau, which is a Federal 

agency that would regulate these entities. I would have understood 

it a year ago or 2 years ago, before we had the CFPB. 

I don’t know that I think the OCC would be any better Federal 

regulator than the CFPB would be. And I wouldn’t want either one 

43 

of them to preempt State law, especially if that law, that State law 

had a higher threshold of protection for consumers. 

And so I guess I am having trouble understanding the rationale 

for this bill in general. I raised these questions, obviously I lost, because the bill—the Rent to Own bill passed out of here with almost 

absolute preemption. This bill, as I understand it, has pretty much 

absolute Federal preemption, too. And while we would take small 

lenders, small credit people and give them an optional Federal 

charter, I just—I don’t understand it. 

So Ms. Jackson, tell me how you think this is going to increase 

credit availability to consumers? 

Ms. JACKSON. Congressman Watt, it is going to help us keep pace 

with technology and what is being offered on the Internet. 

Mr. WATT. So you think the Consumer Financial Protection Bureau doesn’t have the capacity to do that, and the OCC does? 

Ms. JACKSON. First, from what I understand, the OCC has licensing authority, that is why the OCC is looked at as the regulator. 

The CFPB will look at the products to determine the consumer protection measures within those— 

Mr. WATT. So my State has a licensing authority, why would I 

opt for OCC licensing over my State which has traditionally operated in this area, the same point Ms. Bishop has raised here? Why 

would I want the OCC to be licensing a pawnshop, or a payday 

lender when my State doesn’t even allow payday lending? 

Ms. JACKSON. In North Carolina, Congressman Watt, installment 

lending is not prevalent, so the longer-term loans that most people 

would want some additional options would be available through the 

Federal charter. Installment loan— 

Mr. WATT. What additional options are you talking about would 

be available that aren’t currently available if we created a Federal 

charter for—I don’t understand that? 

Ms. JACKSON. Some States, again, it is not addressed to the 

usury laws, or the limits do not allow an installment loan. Right 

now if people would like to have a longer-term loan, they would 

have to go to the Internet for States that don’t provide a licensed 

lender. So as a national chartered lender, I would be able to offer 

that, they would look for the union label, or whatever we would 

want to say that CFPB or OCC regulated entity. If it is not available in their State, they will go to the Internet, they will get what 

they see. 

Mr. WATT. Forgive me for just saying, you have not convinced me 

of this. Of course, they have been trying to convince me for 3 years 

on Rent to Own that this is a good idea. I think this is a terrible 

idea. 

Ms. JACKSON. Congressman, we respect your opinion. What is 

happening, though, is in the marketplace, online, 61 percent of the 

market is being served by non-domestic lenders. 

Chairwoman CAPITO. The gentleman’s time has expired. Mr. 

Luetkemeyer for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. The previous panel talked about credit history. Ms. Jackson, would you 

like to address that with regards to people who utilize your service, 

they establish a credit history by paying their loans off on time or 

picking up two or three more as a result and eventually move on, 

44 

or take advantage of a more traditional loan at some point. Can 

you give me a little credit history analysis how that helps? 

Ms. JACKSON. Currently, the short-term lending product is anything less than 30 days. It typically will not include people’s credit, 

because the credit bureaus do not want to take that data. And so 

we are finding that being a struggle for consumers to try to figure 

out how to use these products and improve credit. 

What we envision with this charter is to allow for those longerterm products, the fact that bureaus we already know that we 

talked to will accept that data so we can graduate people from the 

smaller short-term loans, into, again, maybe a midway product 

where they could get their credit built so then they can deal with 

a bank. 

So we do have to think about how consumers build their credit, 

and how can they do it with non-bank credit products, because if 

you don’t have credit, you are not going to get a bank loan, so how 

do you transition consumers, and we are extremely interested in 

trying to figure that out. 

Mr. LUETKEMEYER. As a former bank regulator and someone in 

the banking industry for 30 years, I have made probably thousands 

of these small loans, because I come from a little bitty small town, 

with a small bank. We don’t have a pawnbroker in our town; we 

don’t have a payday lender or a small loan lender. We are it. And 

so, I have dealt with this all my life. And we sat there across the 

table from a young lady who is stuck in a situation, a single mother, has no way to make her car payments because she doesn’t have 

a car because her husband just left her last night and she is sitting 

there in front of you. She needs some money to be able to go out 

and buy a car to be able to get to work, to be able to pay the bills 

for the baby she has in her arms. How do you solve that problem? 

You solve it with being able to provide credit. Access to credit for 

people like that in an emergent situation, this is what we are trying to do today. It is interesting to me to listen to some of the comments. Mr. Edwards, did you read the bill by any chance? 

Mr. EDWARDS. I did. 

Mr. LUETKEMEYER. Where in there did we circumvent the CFPB? 

Mr. EDWARDS. Congressman, as you well know, the CFPB, under 

Section 1024 of Dodd-Frank is tasked with supervising non-bank 

entities. And under your bill, having the OCC to supervise, examine, prescribe rules and regulations, and to allow the OCC to approve a product sounds like it is encroaching upon what is written 

in Dodd-Frank already. 

Mr. LUETKEMEYER. If you go back and read 4(k), the CFPB has 

full regulatory authority over all consumer financial protection 

under laws that regulate these lenders. There is no change, there 

is no taking away of this. All we are doing, as Ms. Jackson said, 

the documentation to issue the charter under the OCC— 

Mr. EDWARDS. There is obfuscation in terms of what the CFPB 

is tasked to do under Dodd-Frank 

Mr. LUETKEMEYER. There is no intent to circumvent the law, and 

the law in this bill specifically spells that out. 

Very quickly, my time is about gone here. I have one quick question. Mr. Berlau, you made a comment that this would encourage 

45 

entrepreneurs. I was curious how you see this encouraging entrepreneurs? 

Mr. BERLAU. I do, in two ways. First I see, and if Ms. Bishop has 

a cost estimate of how much it would cost a small lender to get licensure from the OCC under this bill, I would like to see it and 

perhaps we can make some improvements. But I scrutinize legislation for cost of small business, and I see nothing where even one 

pawnshop can’t apply for the OCC and become a national lender 

and offer consumers more choices. 

And the other way is, as I mentioned in testimony, in the written 

testimony, Thomas Durkin of the Federal Reserve has found that 

actually auto title loans are utilized not only by consumers, but by 

landscaping businesses, by plumbers, and others who don’t have a 

line of credit with a big bank, and utilize short-term loans in a 

similar way as consumers do. And of course, a lot of small businesses use credit cards—49 percent, so this would just create a lot 

more options for non-banks for them. 

Mr. LUETKEMEYER. Thank you. And just one following comment. 

I know, Mr. Edwards, you made the comment a while ago that people who overdraft normally do it unintentionally. I can tell you for 

over 30 years in the banking business, they are supposed to keep 

a checkbook and make sure that they don’t write more checks than 

they have money in the bank. It is not unintentional; it is irresponsible. 

Mr. EDWARDS. If I could respond to that, Representative. The financial institutions are not supposed to reorder transactions from 

high to low causing consumers to overdraft, unfortunately. And 

that is a situation which is costing consumers countless amounts 

of money, and courts have slapped fines upon some of the larger 

institutions. 

Chairwoman CAPITO. The gentleman’s time has expired. Mr. 

Baca? 

Mr. BACA. Thank you very much, Madam Chairwoman. Just to 

ask one of the same questions I would like to ask Mary Jackson, 

it was sort of asked, but many of the opponents of the bill would 

like to simply frame this bill as a payday bill and talk about the 

problems of specific products. This is done even though the traditional payday loans are prohibited. However, what is lost in the debate is the innovation aspect. Currently, many national banks and 

large credit unions are provided the ability to operate on a Federal 

platform that allows them to come up with new products to better 

serve the customers. And of course, this only works for those who 

have access to mainstream financial services. Can you talk about 

the aspects of this bill? And would the Federal standards created 

by this bill allow for the same increased innovation, specifically to 

serve consumers who need credit for expenses that cost more than 

the typical payday loan? 

Ms. JACKSON. Yes, Congressman Baca. The Federal charter, 

again, is designed to drive innovation, it is very difficult for banks 

and credit unions to do that because they put deposits at risk. So 

they are going to be more circumspect on who they are going to 

lend money to; they are going have higher credit score standards. 

And there has been so much in this space to try to analyze the ability for consumers to repay. We have so much more data out there. 

46 

We have a team of 10 people, our analytics team, who looks at the 

data all the time to determine if we can make that loan and the 

customer’s ability to pay us back. So there has been so many dynamic things that have happened in our sector and we would like 

to share that in a national way. 

We would also like to be able to perform some of these services 

as a marketer servicer to banks so they can grow their portfolios 

and grow their banking business. But when you put deposit at risk, 

and when you put FDIC insurance at risk for these types of loans, 

it is very difficult. We believe we can do that in partnership or directly with consumers. 

Mr. BACA. Thank you. And one of the questions asked, it is very 

difficult to determine, how many times or how many payday loans 

have actually been offered, because we know that is 30 days. So 

there is no way of monitoring how many of those have been done. 

But right now, isn’t it very hard for small-dollar lenders to know 

how many loans a consumer has taken out unless they actually go 

to the same place? However, the chartered institutions would be— 

have a strong Federal oversight, and wouldn’t it lead to greater 

transparency and more complete credit history for consumers? 

Ms. JACKSON. Again, folks in the non-bank sector who underwrite unsecured loans are going to use all kinds of data points, 

companies like Teletrack, where companies do put in how much a 

person has borrowed with the payday loan. We use that type of 

service to determine if we are going to be the third lender on the 

list, is that a good idea? It usually isn’t. So with that said, the technology, the ability to offer more choices to consumers is important. 

I am not sure if I answered your question. 

Mr. BACA. Right. But the ability to track and know how many 

loans the individuals, we would be able to do it. It would be a lot 

easier than the way the system is under the payday lending because you wouldn’t know how many loans that person has had because there isn’t that transparency and oversight. Having a charter, we would be able to determine how many loans that person 

has actually obtained. 

Ms. JACKSON. Right. Under a charter, you can offer a longer-term 

loan, the credit bureaus will take that data and then you will have 

what you need to make sure that, again, they have the ability to 

pay, looking at that credit history. 

Mr. BACA. Because payday lending can only offer it up to 30 

days, what is it? 30 days? Less than 30 days? And the only others 

that I know of are long-term loans. Do you know anybody else who 

offers long-term loans to individuals who may have bad credit? Any 

of you on the panel? 

Ms. JACKSON. Oh, I can offer— 

Mr. BACA. Loan sharks, right? Loan sharks. We don’t want to get 

a loan shark. We want them to establish credit, deal with their 

credit scores as well, and this is what happens to many individuals, 

they end up going to a loan shark because they can only get $400 

from a payday lender, they can get anywhere between $500 to 

3,000 which is the average cost, because when it comes down to 

just going a grocery store, buying groceries, it is almost $500 just 

to buy groceries not to mention any other kind of payment that you 

have. 

47 

Ms. JACKSON. Congressman, even in installment loaning, we did 

have a witness here from Nebraska, and they do have 13 license 

installment lenders there. But it has to be a secured loan, and it 

also has a 16 percent per annum, but because it is a banking entity, they don’t have to show their origination fees or other fees as 

part of the calculation. We need a bigger, honest dialogue about 

what the loans look like in comparison to costs in APRs and fees, 

what is included and what is not. 

Mr. BACA. I know that my time has expired, but doesn’t this bill 

specifically allow chartered institutions to offer products that will 

allow and promote building of savings of credit and history scores? 

Ms. JACKSON. Yes, sir. 

Mr. BACA. I agree with you; that is why there is bipartisan support for this. 

Chairwoman CAPITO. I couldn’t tell by the way you posed that 

question. 

Mr. Huizenga? 

Mr. HUIZENGA. Thanks, Madam Chairwoman, I am not quite 

sure how I follow up that softball. Ms. Bishop, I do apologize. I 

came in right after your testimony. But I want to have you explore 

a little bit about what you believe is—whether it is a threat somehow to your business, will it put the pawn industry out of business, 

and just hear a little bit about that and get some other opinions 

on that as well. 

Ms. BISHOP. We feel that it would create an unlevel playing field 

in the market where you have a Federal charter holder who is not 

subject to the same licensing regulations, fees, and examination 

that an individual pawnbroker is on a daily basis through their 

State, in my case, my State banking department, my city license, 

my county license. In some States, there is a requirement for continuing education for pawnbrokers. That would not be required of 

a Federal charter. 

Mr. HUIZENGA. This is purely bad lawyering maybe, not knowing 

the answer to the question before you ask it, but my impression is 

that it is not common to have a pawn owner own in multiple States 

in that kind of thing, is that accurate? 

Ms. BISHOP. Most of our 1,800 to 2,000 members of the National 

Pawnbrokers Association are small, independent, family-owned 

businesses, maybe two or three shops, maybe up to a dozen, and 

usually not across State lines. In some cases, they do have shops 

in multiple States, but not usually. 

Mr. HUIZENGA. Mr. Berlau or Ms. Jackson or anybody else, do 

you believe this is a threat to the pawn industry? 

Mr. BERLAU. Congressman— 

Mr. HUIZENGA. I need you a little closer to the microphone so we 

can hear you in the room, but not everybody— 

Mr. BERLAU. Congressman Huizenga, if I can offer an analogy. 

Sometimes you have banks with just one branch who get chartered 

by the Federal Government, the OCC, we hear First National, others and sometimes there are very large State banks, so I do not— 

and I scrutinize legislation like this for what burden it places on 

small business, see what the burden is on a small pawnshop or 

lender applying to the OCC and being able to carry that charter 

48 

and being able to offer some innovative products, that small businesses, small lenders develop. 

Mr. EDWARDS. If I may respond, what this bill is a threat to, it 

is a threat to financially fragile households staying afloat. 

Mr. HUIZENGA. Do you believe that the pawn industry has that 

same threat? Have you seen Pawn Stars? Because if you are talking about $7 on a $100 loan as being a threat, what about walking 

in and saying you know what, I don’t have time to wait for it to 

get pawned, my $1,000 item, I have to sell it for $500, because I 

understand the person owning the store has to make a profit. And 

the only way for them to look at it is pretty much doubling their 

money, is that not a threat? 

Mr. EDWARDS. As I mentioned before, it is a direct threat to the 

financial viability of low-income households. 

Mr. HUIZENGA. Which is, pawning or— 

Mr. EDWARDS. This bill. 

Mr. HUIZENGA. Do you have a problem with the industry or a 

problem with the bill? 

Mr. EDWARDS. The way the bill is drafted, yes, sir, we have a 

problem with this particular piece of legislation. It is not so much 

the industry. What we are concerned about is, if loans are made, 

they have to be sustainable loans, transparent loans, loans that are 

not designed to perpetuate financial debt traps. And what this legislation would do is it would grant the charter holders essentially 

a national hall pass to go where they want, and when they want, 

and do on a Federal level what they haven’t been able to do, or 

some instances, it has been scatter shot on a State level. 

Mr. HUIZENGA. But you would acknowledge that some States 

have much tighter and some have much looser laws, correct? 

Mr. EDWARDS. There are varying—amongst the 50 State jurisdictions, there are varying laws. But this particular piece of legislation would allow the charter holders to circumvent those laws, and 

that is a problem because the States have a keen interest in this, 

they are on the ground, they are on the front lines combating some 

of the more toxic abusive products. And they know what is best for 

their citizens. 

Mr. HUIZENGA. So I assume, you like what happens in Chairwoman Capito’s State of West Virginia where it is not allowed, but 

maybe don’t like what is happening in another State that has absolutely no restriction. How do we maybe balance that out? 

Mr. EDWARDS. I tell what you we like, we like to see consumers 

in loans that they can afford, no balloon payments, no loans with 

exorbitant APRs. Those are the things that are not good for the 

consumers and make them worse off than they were before they 

took out a loan. 

Chairwoman CAPITO. Mr. Meeks? 

Mr. MEEKS. Thank you, Madam Chairwoman. I am sorry; I have 

been listening to some of the hearing up in my office and running 

around from meeting to meeting. But I felt compelled to make sure 

that I get back here to ask a few questions. But also, in listening, 

I think that I have lived the life, I sit up here as a Member of Congress today, in a nice suit, et cetera. But I come from public housing, my parents didn’t have a lot of money, and they lived from 

49 

paycheck to paycheck. And certain times, certain things would happen, they needed some money and they had no options. 

The option is to go out to a loan shark or someone else, and if 

you don’t pay it back, they are going to beat you in the head, that 

is my experience. And I find that poor people especially have no options when they are trying—they are smart people, in fact, they 

know how to rob Peter to pay Paul. In my household, that is what 

you did: robbed Peter to pay Paul to make sure you could make it 

to the next day. The fact of the matter is, if that wasn’t the case, 

I might not be sitting here today because certain times, my parents 

had to rob Peter to pay Paul to help me get through school. If they 

didn’t, the school would have put me out if tuition wasn’t paid. You 

have to figure out how you get certain things done. 

So that becomes extremely important because the whole idea, I 

think, is to put the loan shark, as my good friend Mr. Baca indicated, out of business. Now if you wanted to do something that, 

let’s say make all the banks, make all the banks give low or small 

loans, they won’t do it. Why? Because it is not in their interest. 

They can’t make money from it or whatever the deal. Nobody talks 

about that, but if you made all the banks give short-term loans to 

help individuals who needed to just make it for a month or so, then 

we might not be here. 

The reality is those banks don’t exist. Therefore, if you don’t have 

a bill like this, there are no options. So the person who is poor, who 

wants to rob Peter to pay Paul, has no options and wants to do the 

right thing, so therefore they may go to someone who ultimately is 

really bad for them. 

So with the voice of knowing what my life has been, trying to figure it out. Mr. Flores, let me bring you into the discussion. If a bill 

like H.R. 6139 is not adopted, tell me, do you know of any other 

viable approach for ensuring that individuals like myself in the 

past, or my family, underserved consumers, who are unable to obtain smaller loans from banks who are typically currently have 

only an limited number of relatively high-cost credit alternatives 

from non-bank lenders, that are allowed by State laws and had a 

broad range of more innovative and affordable credit laws in terms 

of their needs. 

If we don’t do this, if we don’t pass something like this, what 

other alternatives or options would someone like my family have 

when I was growing up, that they would have today if we don’t 

pass a bill like this? 

Mr. FLORES. There are very few options. As a matter of fact, on 

page 22 of my report, this for the five boroughs of Manhattan, it 

shows where the bank branches are and are not, and the bank 

branches are leaving the communities, the low- to moderate-income 

communities where a lot of where your constituents live. And so 

the only people who are there providing loans are the alternative 

financial services providers. And they cannot get the same service 

from State to State because of the vagaries of State legislation. 

And so we need to offer something that allows the options. We 

are not mandating somebody to go out and get a loan, whether it 

is an overdraft, a payday loan, or installment loan or title loan. All 

we are saying is we are giving them options based upon their specific needs to do what is in their best interest. 

50 

Mr. MEEKS. Let me ask this question too, because I think I heard 

the last panel, there was an OCC witness concerned about the applicability of consumer protection laws and standards under this 

bill, under H.R. 6139. Under this bill, and I open this up to anyone, 

would NCCCs be subject to the Equal Credit Opportunity Act? 

Would they be subject to the Truth in Lending Act, or how about 

the Fair Credit and Billing Act? I throw it out to anybody. 

Ms. JACKSON. Congressman, we are now. If you are a State license lender, you are following these Federal laws and we will continue to do so. 

Mr. EDWARDS. Congressman, if I can briefly respond, as the bill 

is drafted, it lists these credit companies which must comport with 

some of the laws that you mentioned, which are about 18 statutes 

that were transferred to the CFPB, but what it does not mention 

specifically with respect to the CFPB is UDAAP authority, and I 

think that is problematic because the CFPB has invested with this 

particular authority to regulate, to make sure that it stamps out 

any unfair deceptive abuses or practices. And this bill specifically 

does not mention that and that is problematic. 

So if I could back up one second and respond to your previous 

point about being a single-family household and not having many 

credit options. I, too, grew up that way and my mom often visited 

a pawnbroker, and sometimes the TV was there and sometimes it 

wasn’t, I missed Saturday morning cartoons and that was it. But 

thankfully she did not seek out a payday lender, it would have kept 

her and us in long-term debt. 

Chairwoman CAPITO. The gentleman’s time has expired. Mr. 

Grimm? 

Mr. GRIMM. Thank you, Madam Chairwoman. Just so I can get 

some perspective on this, Ms. Bishop, maybe you can help me. Approximately how many $2,000 loans does the average pawnbroker 

make in a year? 

Ms. BISHOP. Thanks for that question. And this kind of goes back 

to what your colleague spoke about, Pawn Stars and the television 

shows. What you see on TV is not what happens every day, and 

actually, our statistics are that on the average, pawn loans are redeemed 85 to 90 percent of the time across the country. They are 

not—not everybody is bringing in a Civil War cannon to sell to 

somebody. 

Mr. GRIMM. I’m sorry, my time is really short. The question, 

though, is how many $2,000 loans a year on average would a 

pawn— 

Ms. BISHOP. It depends where you are located. In my particular 

instance, a $1,000 loan would be a big loan for me. In more metropolitan areas, say, New York and Los Angeles and so forth, a 

$2,000 loan would not be out of the ordinary. How many times a 

year, I have no— 

Mr. GRIMM. Percentage-wise compared—I am assuming where 

you are, an average loan is probably $300 or $400. 

Ms. BISHOP. Actually nationwide, the average pawn transaction is between $100 to $150. 

Mr. GRIMM. So compared to that, is it a very small percentage 

nationwide? 

Ms. BISHOP. That would be making $2,000 loans? 

51 

Mr. GRIMM. Yes. 

Ms. BISHOP. Yes. 

Mr. GRIMM. Okay. And I think that is a big part of what we are 

here discussing today is that the mid-size loans, there is a tremendous void, there is a complete lack of options for people. And we 

just heard that is a small amount of what pawnbrokers are doing. 

Ms. BISHOP. But it is not a small amount compared to the licensing and everything that we have to do under our State laws. 

Mr. GRIMM. Okay. 

Ms. BISHOP. We would still have to do things that a Federal 

charter holder wouldn’t. 

Mr. GRIMM. Do you think pawn loans should be the only option 

for American consumers of modest means? 

Ms. BISHOP. No, sir. 

Mr. GRIMM. What other options does your company have for consumers who need small loans but don’t have any collateral? 

Ms. BISHOP. Our State legalizes payday loans, and it has been 

that way for about 10 years. I am in a town of about 4,000 people. 

There are six payday stores in that town, there are four community 

banks, and one credit union. 

Mr. GRIMM. Do you have your own company or do you just represent the others? 

Ms. BISHOP. I have my own pawn store, yes, sir, Dollar Pawn. 

Mr. GRIMM. Okay, at your pawn store, can I get a loan from you 

if I have no collateral? 

Ms. BISHOP. You can get—I also have a payday loan license, and 

you can get a payday loan, under State supervision from the State 

of Alabama, their guidelines. 

Mr. GRIMM. Okay. 

Ms. BISHOP. And I pay for that license separately. 

Mr. GRIMM. Mr. Edwards, you mentioned before that you were 

very concerned about the predatory nature of some of these loans 

and that the States are in a position to manage that, but does that 

mean the CFPB and the OCC can’t do that? 

Mr. EDWARDS. No, that does not mean that at all. The concern 

here is that the OCC, under H.R. 6139, would have the authority 

to approve products, to grant national charters, and prescribe regulations for the charter holders. And that is a concern because the 

CFPB has the authority under Dodd-Frank to regulate these nondepositories. 

Mr. GRIMM. But the CFPB’s job, even if that charter is granted, 

is to make sure the entity that was given a charter is, in fact, not 

harming the consumer with some of the devastating things you 

said. Am I wrong? Am I misreading the legislation? 

Mr. EDWARDS. If your question is, is the specific mission of the 

CFPB to protect consumers and then force Federal consumer financial law, you are correct, Representative. But what this bill will do, 

it completely circumvents the CFPB’s authority to do so with respect to certain nondepository entities, and that is concerning, as 

well as preempt some of the tough State consumer protection measures that are out there. 

Mr. GRIMM. I disagree. I don’t think it takes anything away from 

the CFPB, and the language in the bill is very, very clear on that, 

but my time is up. I yield back. 

52 

Mr. RENACCI [presiding]. Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank the witnesses for appearing. Ms. Bishop, it has been revealed that you 

have hands-on experience in the sense that you actually operate a 

business. Is this correct? 

Ms. BISHOP. Yes, sir. 

Mr. GREEN. Let me just ask by way of a show of hands, are there 

other persons who actually operate a business that will be impacted, operate the actual business? 

Ms. JACKSON. I’m an employee of a business, a very large business. 

Mr. GREEN. Pretty large. 

Ms. JACKSON. Yes, sir. 

Mr. GREEN. I am not trying to demean you; I appreciate what 

you have been able to accomplish. 

Ms. JACKSON. A Texas-based business. 

Mr. GREEN. Maybe I will do some follow-up on what you said 

about a Texas-based business. Ms. Bishop, as the only person on 

the panel who actually operates a business, I detected a sense of 

urgency from you that I haven’t sensed in the others, and I assume 

some of it emanates from your concern for the life of your business. 

You have expressed some of these concerns. Are you of the opinion that your business may have to go out of business if this occurs? If you were downsized, would you lose employees? What is 

the sense of urgency that I can sense in your intonations and your 

demeanor? 

Ms. BISHOP. The sense of urgency, as I said in my statement, is 

the creation of an unlevel playing field that would be created by 

a Federal charter holder, where someone, one of these mega providers could provide Internet loans, could provide pawn loans on 

the Internet, payday loans on the Internet, and maybe they would 

not have to have the same licensing regulation examination and 

education requirements in some areas. And it would put the independent small business owner at a deficit. 

Mr. GREEN. You mentioned education—the legislation does not 

require education; in fact, it preempts these requirements at a 

State level. What type of education are you or your employees required to have? 

Ms. BISHOP. In some States, there is a continuing education requirement for obtaining and keeping your pawn license. There is 

also, in some States, and Texas is one of them, a requirement that 

each employee of a pawn operation has to be licensed by the State 

as well. So all of this would not be subject to a Federal charter 

holder. 

Mr. GREEN. Are you speaking today for other persons who operate similar businesses, and do they have similar concerns? 

Ms. BISHOP. I am speaking for myself, and for the National 

Pawnbrokers Association, yes, we are very concerned about the position that it could place small independent family-owned businesses in, and some of these businesses have been in operation for 

generations. 

Mr. GREEN. Are most of these small businesses less than 25 people? More than 25 people? 100 people? What are we talking about 

when we say small business? 

53 

Ms. BISHOP. I guess I am probably a good example. I have 5 employees, and that includes myself, and that can go up to maybe 25, 

30 employees in a larger store that maybe runs longer hours of operation. It is an operational question, and location as well. 

Mr. GREEN. So a simple exemption for your business that would 

exclude you from this would not suffice, because your concern is 

the competitive disadvantage that you will find yourself having to 

negotiate in if this passes. Is that a fair statement? 

Ms. BISHOP. Yes, sir. 

Mr. GREEN. It is just not enough to say, okay, we will let the 

pawnbrokers be exempt. Your concern is whether you will have existence. Is that what you are telling me? 

Ms. BISHOP. Yes, sir. 

Mr. GREEN. And let me ask you now about how you have through 

these—how many years have you been in business? 

Ms. BISHOP. Twenty-four. 

Mr. GREEN. Twenty-four years. 

Ms. BISHOP. Yes, sir. 

Mr. GREEN. Do you think you know what is good for your business? Do you think you have a good sense of what works best for 

your business after 24 years? 

Ms. BISHOP. I would certainly hope so, or I still wouldn’t be 

there. I would have a show on TV. 

Mr. GREEN. Thank you. I hope that you will continue to stay in 

business. 

I genuinely am trying to find some sense of where we should go 

with all of this. And I say it to you sincerely, I have tried to stay 

through the entire hearing. There were other things that were tugging at me. But I want to get some sense of what we really should 

do, and I thank you for your testimony because you have a handson experience with this, and it means a lot to me. Thank you very 

much. 

Ms. BISHOP. Thank you for your attention. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. RENACCI. I recognize Mr. Fincher for 5 minutes. 

Mr. FINCHER. Thank you, Mr. Chairman. 

Where Mr. Green left off to Ms. Bishop, why again would you be 

at a disadvantage if this bill is passed? Specifically, what is going 

to put you at a disadvantage to competitors? 

Ms. BISHOP. First of all, I pay well over $1,000 just for my licenses. 

Mr. FINCHER. Your competitors would not pay that? 

Ms. BISHOP. They wouldn’t pay State or local licensing, no, sir. 

That is one thing right off the bat. Put a pencil to it. 

Mr. FINCHER. Okay. And you would have to pay that, and they 

wouldn’t? 

Ms. BISHOP. Yes, sir. 

Mr. FINCHER. Why wouldn’t you just not pay it? 

Ms. BISHOP. Because I am not a Federal charter holder, and if 

I am going to stay in business in my State, I have to be licensed. 

Mr. FINCHER. Okay. So it just would be the license and the fees. 

That is what would put you at a disadvantage. And how much are 

those fees in a year? 

54 

Ms. BISHOP. It could also be—in my particular case, with one store, it is in excess of $1,000. It also could create—if they can operate, a large Federal charter holder can operate more efficiently 

and at less cost to them, they may be able to undercut the fees and 

services that non-Federal charter holders are able to offer. There 

is lots of potential for—there is blue sky. 

Mr. FINCHER. I get it. 

How many stores do you have? 

Ms. BISHOP. I have one. 

Mr. FINCHER. You have one. And what is your gross revenue in 

a year? 

Ms. BISHOP. Approximately $400,000 to $500,000. 

Mr. FINCHER. Okay. And the fees are $1,000, your State fees are 

$1,000? 

Ms. BISHOP. Yes. 

Mr. FINCHER. Yes, sir, Mr. Flores? 

Mr. FLORES. I think we are losing sight here of something, and 

that is I understand small business, I have worked with a lot of 

small banks and the threats that competition provides. But it 

seems to me that the focus should be on the consumer and what 

is best for that consumer. And if competition brings more efficiency, 

lower costs, and lower fees to the consumer, then who benefits? 

Ms. BISHOP. We are not afraid of competition, if it is level. 

Mr. FINCHER. Let me say this, and then I am going to let Ms. 

Jackson speak. The consumer should have a product offered to 

them that is competitive, and they should be able to choose for 

themselves. But also there is nothing wrong with competition, and 

in the free market, in our system of capitalism, where making a 

profit there is nothing wrong with, it is something good. But we do 

need to make sure that we are all playing by the same rules. This 

is kind of complicated. 

Ms. Jackson, would you like to comment? 

Ms. JACKSON. One, Fran and I are good friends, and we have 

served together and worked for the pawn industry, and we have 

about 1,000 locations. But when it comes to pawn, we coexist today, 

large lenders and small lenders. We also have the zoning restrictions. Lots of cities don’t want a pawn shop on every corner, so you 

have that restriction, and if you are nationally chartered, that is 

not going to go away. 

The other thing is when you look at the OCC license holders, a 

lot of them are the national banks, but the majority of the license 

holders under the OCC are single banks in small towns. So, it is 

like the National Bank of Tyler, the National Bank of Gaston. It 

is up to the lender whether they want to be State-regulated or federally-regulated. 

And believe me, if we are licensed under the OCC, we will have 

fees. We are going to have to pay for ourselves and all the oversight. So those fees will be realized by the national charters, just 

like they are for the banks today. Banks have to pay a national fee 

to the OCC, or they are going to pay a State license fee. 

Mr. BERLAU. Congressman Fincher, if it does cost less, or if it 

would cost less to get a Federal charter than a State license, the 

solution under this bill for—and I am not sure it would be, and I 

think the focus should be consumers—the solution for a small lendVerDate Nov 24 2008 16:07 Mar 28, 2013 Jkt 076120 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 K:\DOCS\76120.TXT TERRI
55 

er would be to apply for a Federal charter. There are one-branch 

banks, small banks, lots of small banks, that have Federal charters, like the First National Bank, and there is nothing that I see 

in this bill imposing a cost burden—indeed, the situation described 

was that it may cost less—preventing a small pawn shop or lender 

from getting a Federal charter under this bill. 

Mr. FINCHER. I am confident—again, you are successful in your 

businesses—that in America you will find a way to make it work, 

because that is who we are as a country. But, again, I think we 

need to be careful, walk slow. But you will have the choice to 

choose between becoming federally-chartered or regulated by the 

State. And we just appreciate the testimony today and thank you 

for your hard work. 

I yield back, Mr. Chairman. 

Mr. RENACCI. Thank you. 

The gentleman yields back. 

I want to thank the members of the panel. I think your testimony was very informative. 

The Chair notes that some Members may have additional questions for today’s witnesses, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 

days for Members to submit written questions to these witnesses 

and to place their responses in the record. 

This hearing is now adjourned. 

[Whereupon, at 1:13 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

July 24, 2012 

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76120.001

STATEMENT BY 

JOHNBERLAU 

SENIOR FELLOW, FINANCE AND ACCESS TO CAPITAL 

COMPETITIVE ENTERPRISE INSTITUTE 

BEFORE THE 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND 

CONSUMER CREDIT 

Washington, DC 

.July 24, 2012 

Chairman Capito, Ranking Member Maloney, and honorable members of this subcommittee, thank you 

for this opportunity to present testimony on behalf of my organization, the Competitive Enterprise 

Institute, on this hearing examining important concerns about access to credit and capital among 

consumers and small businesses, and both federal and state regulatory impediments to this access. 

This hearing also shines light on one ofthe most untold stories on the workings of Congress. This story is 

that believe it or not - members of Congress are working together and finding common ground on 

legislation that would pare down excessive regulations that block stable and transparent sources of 

credit and capital for both consumers and entrepreneurs. And they are doing so by getting together on 

bills that lower barriers for many sources that provide consumer and business financing: community 

banks, credit unions, and, as this hearing will explore, nonbank lenders or nondepository creditors. 
59 


76120.002

First, there was the Jumpstart Our Business Startups (JOBS) Act, signed by President Obama in April after 

it passed this House overwhelmingly. The JOBS Act provides relief from some of the most onerous 

provisions of Sarbanes-Oxley and Dodd-Frank, provisions that make it especially difficult for smaller and 

emerging growth companies to raise capital and go public. It also greatly aided community banks by 

quadrupling the number of shareholders they may have without being subject to a multitude of rules 

from the Securities and Exchange Commission. 

Then there is there is the Small Business Lending Enhancement Act (H.R. 1418) with cosponsors ranging 

from some of the most conservative Republicans to some ofthe most liberal Democrats, which would 

raise the cap on the business lending that credit unions can provide to their members. 

And then there is the legislation that is the subject of this hearing, the Consumer Credit Access, 

Innovation, and Modernization Act (H.R. 6139), co-sponsored by Congressmen Blaine Luetkemeyer (RMo.) and Joe Baca (D-Calif.) This bill would give nonbank lenders, or nondepository creditors, the option 

of being chartered federally by Office of the Comptroller of the Currency (OCC), to allow them to make 

the same type of loans to consumers and entrepreneurs across state lines. Creating this option for these 

creditors - who lend every day without the guarantees of deposit insurance or other government 

backing -- would extend a healthy source of credit to underserved consumers and small businesses 

without putting a dime of taxpayer dollars at risk. 

My organization, the Competitive Enterprise Institute, is a Washington-based free-market think tank 

that since its founding in 1984 has studied the effects of all types of regulations on job growth and 

economic well-being. As we have said before, we follow the regulatory state from "economy to 

ecology," and propose ideas to "regulate the regulators" and hold them accountable so that innovation 

and job growth can flourish in all sectors. 

Our theme on job growth has been "liberate to stimulate," because as our Vice President Wayne Crews 

has observed, one doesn't need to teach - or subsidize -- grass to grow. Rather, remove the rocks 

obstructing its growth, and it will grow wide and tall. 

My title at CEI is senior fellow for finance and access to capital. And to increase access to credit and 

capital, CEI proposes a public policy strategy that can best be described with a phrase sometimes 

associated with energy exploration: "All of the above." Banks, credit unions and non bank lenders all 

have a role to play in expanding credit for responsible consumers and entrepreneurs. And all should be 

able to operate free of excessive regulation. 

That's why we supported the regulatory relief for community banks in the recently enacted JOBS Act. 

It's why we support allowing credit unions to make more business loans to their members. And it's why 

we support H.R. 6139's giving nonbank lenders the same opportunity to offer financial services through 

a national charter that banks have had for 150 years. 

CEI has long supported optional federal chartering as a part of our goal of what we call "competitive 

federalism."AS our chairman Michael Greve, who is also a fellow at the American Enterprise Institute, 
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puts it, "Real federalism aims to provide citizens with choices among different sovereigns [and] 

regulatory regimes." 1 

Neither states nor the federal government are perfect, and we believe the best system of regulation is 

fostered when they learn from each other by competing with each other, allowing consumers and 

entrepreneurs to help decide what system of regulation is the best. We've long supported expanding 

the system of optional federal chartering that has existed for banks to other financial services such as 

insurance.' The sponsors of H.R. 6139 have made a convincing case to us that optional federal 

chartering would work well for nonbank lenders as well. 

After all, all this would basically do for unsubsidized nonbank lenders is to create the same system of 

optional federal chartering that has existed for banks for almost 150 years, and at the very same federal 

agency - the ace. Under the Civil War-era National Bank Act, banks could apply for a national charter 

through the ace. Many banks chose to stay with their state regulators, but competition from federally 

chartered banks lowered the cost of credit and capital for everyone. 

One of the clearest examples of this is what happened in the market for credit cards when the Supreme 

Court clarified in its unanimous 1978 decision Marquette National Bank of Minneapolis v. First of Omaha 

Service Corp that federally chartered banks could offer credit cards to consumers across state lines. Over 

the next few years, not only did access to credit increase, but credit became overall cheaper. Companies 

slashed interest rates and fees, and many got rid of the annual fee that had previously made credit cards 

costly for middle class consumers. Some consumers used this access to credit irresponsibly, and some 

credit cards used deceptive marketing tactics, for which there should be swift punishment, but overall 

most American benefitted from access to credit at a much lower cost.' 

A similar reduction in the cost of credit - and increase in access to credit -- could occur under a system 

of optional federal chartering for nonbank lenders. This would work to the benefit of lower income 

consumers currently priced out of mainstream financial instruments such as credit and debit cards - as 

well as small entrepreneurs who can't get traditional bank loans or venture capital investment. 

Research on entrepreneurship from the Kauffman Foundation and other respected sources, as well as 

some prominent specific examples, shows that there is much less of a gulf between personal credit and 

business credit than some policy makers may believe. Sergey Brin, for instance, started what is now 

Google Inc. as a college student using his personal credit card. Now-Famous filmmakers such as Spike 

1 Michael S. Greve, Real Federalism: Why It Matters, How It Could Happen, AEI Press, Washington, D.C., 1999 

2 Jennifer Smith-Bozek, "Pros and Cons of Optional Federal Chartering for Insurers," Competitive Enterprise 

Institute, WebMemo No.1, January 15, 2008, http://ceLorg!sites!default/files/Jennifer%20SmithBozek%20-%20Pros%20and%20Cons%20of%200ptional%20Federal%20Chartering%20for%20Insurers.pdf. 

3 Todd J. Zywicki, "The Economics of Credit Cards," Chapman Law Review, Vol. 3:79, 2000 

http://www.globaleconomicsgroup.com/publication/the-economics-of-credit-cards/ 
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Lee maxed out their credit cards to make their first films,' And the Kauffman Foundation finds that 

nearly half of all entrepreneurs use personal credit cards s 

There is also evidence that entrepreneurs utilize nonbank lenders more typically associated with 

consumer borrowing. Former Federal Reserve senior economist Thomas Durkin has written: "Small 

businesses sometimes use consumer credit products that might be considered fringe financial products, 

For instance, small independent businesses such as landscaping, plumbing, and handyman services may 

use auto title loans as a source of short-term working capitaL'" 

Durkin further explains: "An independent landscaping company may need several hundred dollars to 

purchase sad and bushes for a job, orfor temporary cash to meet payroll while finishing a job, or 

awaiting payment In these cases, the proprietor may pledge his pick-up truck to obtain the necessary 

capital to buy the supplies to complete the job. Then when the job is complete-often only days laterpayment is made and the owner can redeem the collateral.'" 

H.R. 6139 would broaden these options and lift barriers to loan innovations specifically suited to small 

entrepreneurs. And it also would move away from the flawed reliance on the annual percentage rate as 

a measure of a short-term loan's fairness and effectiveness. As I point out in my recent study, "The 400 

Percent Loan, the $36,000 Hotel Room, and the Unicorn", if "the financing costs of other goods and 

services were measured on an annual basis, it would be easy to lob 'predatory pricing' charges against 

their producers as well,'" As the distinguished economist Thomas Sowell points out, "Using this kind of 

reasoning - or lack of reasoning - you could ... say a hotel room rents for $36,000 a year, [but] few 

people stay in a hotel room all year'" 

Closer to home, if common bank fees - such as late payment and overdraft charges were subject to the 

APR measurements they would have astronomical interest rates, much higher than the nonbank shortterm loans that come under such controversy, Kelly Edmiston, senior economist at the Federal Reserve 

Bank of Kansas City, points out in his study published in that Fed branch's Economic Review, that the 

"median interest rate" for bounced check fees if they were measured as interest payments - would 

be "well in excess of 4,000 percent, or up to 20 times that of payday loans" 

4 "Does Credit Card Debt Harm Small Business?" Index Credit Cards, April 19, 2010 

http://www.indexcreditcards.com/creditcardnews/does-credit·card-debt-harm-small-businesses/ 

5 ''The Kauffman Firm Survey," Kaufman FoundatiDn, March 2008, 

http://www ,ka uffm an, org/ up loa d ed Fil es/kfs _ 08, pdf 

6 Thomas A, Durkin, "The Impact of the Consumer Financial Protection Agency on Small Business, U,S, Chamber of 

Com merce, p, 18, http://www.uschamber.com/sites/default/files/reports/090923cfpastudy,pdf 

'Ibid 

'John Berlau, "The 400 Percent Loan, the $36,000 Hotel Room, and the Unicorn," Competitive Enterprise 

Institute, WebMemo No. 176, Feb. 6, 2012, http://ce;,org/sites/default/files/John%20BerlauThe%20400%20Percent%20Loan.pdf 

9 Kelly D, Edmiston, "Could Restrictions on Payday Lending Hurt Consumers," Economic Review, First 

Qu arte r 2011, http://www ,ka nsascityf ed, org/p u b licat! econ rev/pdf /llq 1 Ed miston.pdf. 
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76120.005

Now, I don't believe we should ban or put ceilings on overdraft fees or put any thicket of new 

regulations on banks and credit unions. As I noted previously, CEI supports an all-of-the above strategy 

for access to credit and promotes consumer choice and consumer responsibility with true disclosure. 

But I do believe that some non-bank short-term loans - be they for weeks or for months could be a 

better alternative for many consumers than overdraft fees. In deciding whether to put restrictions on 

credit, we need to look at what consumers would use as alternatives for emergency cash were the law 

to deny them choices in legitimate credit. 

The final benefit to H.R. 6139 is that as we expand the universe of small-loan options and providers, 

America's financial system becomes that much less reliant on large financial institutions deemed by 

some as "too big to fail." Former Federal Deposit Insurance Corporation Chairman William Isaac is 

respected by both parties for his advice on reducing systemic risk through reforming accounting and 

capital rules. Isaac now says in a written statement submitted forthe record of this hearing (a statement 

I have also included as an Exhibit for this testimony), under the legislation, "these federally chartered 

and regulated short-term lenders will be required to raise their capital and funding entirely from private 

sector sources without the benefit of any federal guarantee." He notes that the safety and soundness 

"record of non-bank short-term lenders over recent decades has been impressive in good times and 

bad." 

I'd like to end with the optimistic note that I believe this Congress can once again prove the media 

wrong and pass a bipartisan piece of legislation that "liberates to stimulate" by lifting the regulatory 

barrier sthat block access to credit for responsible consumers and entrepreneurs. Thank you again for 

inviting me to testify, and I look forward to answering your questions. 
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76120.006

Exhibit 1 

STATEMENT of 

WILLIAM M. ISAAC 

Former Chairman, Federal Deposit Insurance Corporation, 

July 24,2012 

I commend the subcommittee for conducting this hearing on the important issue of access to credit for 

cash-strapped consumers and small businesses. I wish I were able to participate in the hearing in person 

and would appreciate my written statement being made part of the record. 

I am former Chairman of the Federal Deposit Insurance Corporation; Senior Managing Director & Global 

Head of Financial Institutions for FTI Consulting; and Chairman of Fifth Third Bancorp. The opinions I 

express are my own and do not necessarily reflect the views of these organizations. 

I appreciate Congressmen Luetkemeyer and Baca taking the time to fashion an innovative approach to 

increasing the flow of small loans to individuals and businesses. As reported in the "findings" of their 

bipartisan bill, studies by the FDIC and others "have shown that roughly half of all American families ... 

are literally living paycheck-to-paycheck." I think we can all agree that we need more education in 

financial literacy, and we need more stable sources of credit. 

I believe the proposed Consumer Credit Access, Innovation, and Modernization Act's creation of 

optional federal chartering for non-bank lenders is an innovative approach that could yield many 

benefits. It's difficult for me to see a downside to the bill. 

The legislation would create an optional federal charter for non-depository lenders at the Office of the 

Comptroller of the Currency, which has chartered national banks for 150 years. The legislation instructs 

the Comptroller to focus on the "true cost" of the loan product rather than the annual percentage rate 

(APR) and facilitates the offering of short-term lending products best suited to the needs of borrowers, 

beyond payday lending. 

I have long been critical of interest-rate ceilings that restrict or effectively prohibit short-term personal 

loans from banks and non-bank lenders. While the APR provides useful information to consumers when 

comparison shopping for loans, it is inappropriate to use it to cap interest rates on short-term lending. 

Hearing about a 390% APR for a payday loan, for example, is at first blush jarring. But after thinking 

about it more carefully, one recognizes the value proposition. The APR on a payday loan is much lower 

than the APR on a typical fee for a bounced check or for a late mortgage or credit card payment, or the 

fee for getting your electricity turned back on after it has been cut off due to late payments. The loan 

fee is definitely much less than the lost income when you can't get to work because you can't afford to 

get your car repaired. These are typical of the choices facing customers who take out a short-term loan. 
64 


76120.007

The plain truth is that tens of millions of people from all walks of life decide their best option is to do 

business with non-bank, short-term lenders. The terms are very easy to understand - you borrow $200 

and you pay back $230 two weeks later. Critics claim this amounts to predatory lending, a charge I don't 

understand. The loans are unsecured and if you default, there is not much the lender can do except not 

grant another loan. The lender cannot evict you from your house or take your car. It's not economic for 

the lender to even file a collection suit. 

The legislation addresses directly the criticism that payday loans are never really repaid - just renewed 

over and over. I believe this criticism is blown out of proportion, particularly in comparison to other 

types of borrowing. The high APRs and short maturities on payday loans make it impossible to keep the 

rollover game going for very long, in contrast to credit card and other revolving debt. 

In any event, to the extent rollover loans are a problem, it is largely because state regulatory barriers 

effectively prohibit lenders from offering borrowers more suitable options, such as installment loans, 

which most lenders would very much like to do. As John Berlau ofthe Competitive Enterprise Institute 

noted in a recent paper, "In California, a nonbank lender can make a payday loan in the maximum 

amount of $300 or an installment loan in the minimum of $2,500. This leaves a big gap in the middle." 

The Luetkemeyer-Baca legislation will help bridge this gap by allowing safe, regulated and innovative 

loans to flow across state Jines and benefit consumers and small businesses. It will do so without 

exposing taxpayers to any risk, as these federally chartered and regulated, short-term lenders will be 

required to raise their capital and funding entirely from private sector sources without the benefit of any 

federal guarantee. 

The financial record of non-bank short-term lenders over recent decades has been impressive in good 

times and bad. Short-term lending is relatively risky, but the risks are ameliorated due to diversification 

in the portfoliO, and the risks are priced into the fee structure. It is quite feasible to maintain high loan 

loss reserves and strong capital against short-term loans and achieve good returns if the short-term 

lender is an efficient operator. 

Reducing unnecessary regulatory barriers will increase competition for bank and non-bank lenders and 

will foster sustainable sources of credit for consumers and small businesses. This will in turn stimulate 

economic growth and job creation. The Luetkemeyer-Baca bill appears to be an important step in the 

right direction and deserves a fair hearing and serious consideration. 
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Prepared Statement of Frances C. Bishop, Haleyville, Alabama 

On behalf of the National Pawnbrokers Association and the Alabama Pawnbrokers 

Association 

Committee 011 Financial Services 

Subcommittee on Financial Institutions 

Jnly 24, 2012 

Chaimlan Capito, Ranking Member Maloney, and Honorable Members of the 

Subcommittee, my name is Fran Bishop. I have owned my own pawnshop for 24 years and have 

served the National Pawobrokers Association (NPA) as its president and as chair of its 

government relations committee. I also have been actively involved with the Alabama 

Pawnbrokers Association. 

The NPA, the only nationwide pawn trade association, represents more than 1800 

independent owners of pawn stores across the United States. By numbcr of stores and 

percentage of the overall pawn market, our membership dwarfs the three publicly traded 

companies in the pawn industry. Independent, family-owned pawn stores or small regional 

chains represent approximately 78 per cent of the market for pawn transactions. None of the 

publicly traded pawn companies are members of our Association. None have any authority to 

speak for the Association or thc pawn industry as a whole. Our members serve roughly 30 

million consumers across the United States every year. The NPA on ly represents pawnbrokers; 

the Association takes no position on other non-depository providers' products. 

The NPA is strongly and unequivocally opposed to both H.R. 1909 and H.R. 6139. We 

recognize that the sponsors of both bills were well-intentioned, but we see both bills as having 

consequences far beyond those the sponsors intended, which we describe below in greater detail. 
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H.R. 1909 and H.R. 6139 qualify as among the most sweeping deregulations of financial 

service providers ever introduced into Congress. Either biJl, if passed, would allow a small 

number of mega providers to grab huge market shares and to be subject to relatively little or no 

regulatory oversight at the federal or state levels. But most of us who operate independent, 

family-owned, community-based providers will continue to be subject to the array of federal, 

state and local laws and regulations that the industry suppolicrs of these two bills want to escape. 

And being free of those levels of laws and regulations will save the big charter holders so much 

money that they can price their products well below ours and keep their profits high. These bills 

will place millions of middle-class consumers at the mercy of these large, remotely operating 

companies and place thousands of family-owned, local businesses like mine at enormous 

competitive disadvantage. 

l. Industry Overview and Compliance Requirements: Pawnbrokers, the oldest providers of 

consumer credit in the world, enjoy a long working relationship with the States. New York 

enacted the first state law regulating the pawn industry a consumer protection law, I might add 

in the 1890's. Many other stales enacted pawn consumer protection laws during World War I 

and others since the explosion of consumer credit products occurred in lhe 1960's and 1970's. 

Pawnbrokers arc among the most heavily regulated providers of consumer credit products 

in the nation. We are regulated by local governments, as well as being supervised and examined 

by the States. In most states, a single state agency issues our general business licenses. In all 

states, law enforcement ageneies can inspect our records. State-level regulation of the pawn 

industry allows the States to make laws that suit the needs of their own residents. Over the years, 

many of the more populous States, such as New York, California, Michigan, Ohio, !l!inois, and 

Massachusetts, have enacted lower permissible ceilings on the interest and other charges 

pawnbrokers may charge. Some of the less populated States allow higher interest rates and 

charges to enable pawnbrokers and other traditional State-licensed lenders to offer credit to their 

residents. A few larger States allow among the highest interest rates in the nation. One thing we 

have learned is that States enact laws tbat fit their residents' interests and that regulation of pawn 

transactions are not "one-size-fits-all" propositions no matter how much anyone claims they arc. 

This bill, however, effectively allows federal charter holders to "export" the interest rales and 

charges from one state to the next, taking away from the States the power to decide what 

packages of interest rates and charges make sense for that State's residents. 

Pawnbrokers must comply with thirteen assOIied federal laws and regulations. The 

majority of these are federal consumer credit protection laws, including laws enforced by federal 

bank regulatory agencies, the Federal Trade Commission, the Department of Defense, and now 

the Consumer Financial Protection Bureau (the CFPB). Other applicable laws and regulations 

involve reporting of cash transactions to the Internal Revenue Service and compliance with the 

anti-money laundering laws and anti-terrorism laws enforced by agencies within the Department 

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of the Treasury. Pawnhrokers are subject to the CFPB for enforcement and rule-making 

purposes, but are not subject to the same examination and supervision authority tbat the CFPB 

bas over payday and title lenders, mortgage originators, or student loan originators. 

It's pretty clear to us that escaping the general jurisdiction of the CFPR, and particularly 

tbat agency's powers to examine and supervise them and to promulgate regulations over their 

products, is a major goal of industry supporters of!l.R. 1909 and H.R. 6139. 

Freedom from the CFPB's grasp is not the only reason why certain large companies want 

the protections that H.R. 1909 and H.R. 6139 offer them. They also want to escape from 

restrictions being imposed on their products by the States that granted them their current 

corporate charters and licenses to operate whether those restrictions are imposed by State 

legislatures or by the voters of the States in which they wish to operate unfettered. States 

including North Carolina, Ohio, and Georgia have restricted or prohibited products that the 

companies supporting H.R. 1909 and H.R. 6139 want to offer. Others States such as 

Pennsylvania have insisted that companies seeking to do business with their residents get 

licensed and operate under the tenns of those licenses. Citizens in Missouri will be voting in the 

general election this fall on new limits on certain loan products (but not on pawn loans) 

following a successful ballot drive by residents and prominent church groups in that State. 

The NPA's independent, family-owned members stand ready to play the same role in the 

consumer credit market that we have played for more than 120 years under state regulation and 

since Christopher Columbus pawned Isabella of Spain's jewels to finance his search for the New 

World, and the Vatican financed the kings in Europe. We're a vibrant group with the interests of 

our local customers, employees, and local communities at heart. 

Independent pawnbrokers are the nation's "safety net" lenders to individuals who do not 

have credit cards or bank accounts. We help middle-class Americans get to work, buy trade 

supplies, and we help business owners make payroll when their business customers do not pay 

them on time. We help families of soldiers deployed, injured and killed abroad cope with the 

emergency financial needs they have. Big providers located outside communities are not likely 

to care as much or do as much for individual customers in need as we do, or to help out the local 

church or police benevolent associations with charity campaigns. 

H.R. 1909 and !l.R. 6139 are likely to wipe our businesses off the map and destroy the 

locally provided credit and tens of thousands of jobs in communities like yours for the benefit of 

a few large companies. 

II. NPA's General Concerns about Il.R. 1909 and !l.R. 6139: As far as the NPA is concerned, the 

overall credit market should continue to have both a wide an'ay of products from which 

consumers can choose, and a wide array of providers. In other words, we believe that more 

competition, not less, makes for a bettcr overall consumer credit market. 

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However, both !-I.R. 1909 and !-I.R. 6139 would have the result in a relatively short 

period of time, of reducing the number of providers in the overall market. Lessons from the past 

tell us that fewer competitors mean higher prices for consumers and small businesses, not lower 

prices. Anyone whose neighborhood lost a pharmacy, grocery store, or gas station knows that 

prices rise when fewer competitors are in the local market. 

Both bills make it sound as if non-depository consumer financial services providers are 

not regulated sufficiently and thoroughly. We objected when banks tried to use this argument to 

cause more attention to be paid to non-banks during the Dodd-Frank Act debate. We object now 

that this same argument is being used to suggest that the Office of the Comptroller of the 

Currency (OCC) will necessarily do a better job of regulating non-depository providers and 

products than the states have been doing for decades. 

A. Effect on State Consumer Protections: Consumers in our States enjoy consumer 

protections that are enforced and the states also sec to it that we meet our obligations under 

federal laws. The manner in which pawnbrokers and pawn loans are being regulated is working: 

one rarely hears conswner complaints about pawn transactions. That old adage about "not fixing 

what's not brokcn" comes to mind every time I hear or read about how state-licensed providers 

need more federal supervision. 

Moreover, the bills would leave as the primary enforcer of important consumer protection 

laws and regulations the OCC, an agency that already has enormous responsibilities for the 

safety and soundness of all national banks and for their compliance with federal consumer credit 

protection laws. No matter how sincere the OCC's intentions are to exercise the important 

supervisory roles Congress assigns to it and to perrorm the same level of supervision and 

enforcement over new non-depository providers to whom the OCC grants federal charters, it is 

unrealistic to expect that non-depository providers will or should compete for attention with the 

banks on which other parts of the national and global economies depend. 

Thus, enactment of either H.R. 1909 or H.R. 6139 virtually guarantees that nondepository chmier holders will get less attention from regulators and enforcers of federal 

consumer credit protection laws than they have for the past 40 years. This is clearly what the 

industries and industry members urging enactment want. Indeed, a careful reading of !-I.R. 6139 

reveals that the GCC will have less power over products offered by non-depository charter 

holders than it has over the deposifOlY providers in its jurisdiction, national banks andfederal 

smlings associations. 

B. Effect on Markets: These giant companies and certain individuals want to control the 

market for consumer financial products for the millions of consumers who either do not have 

bank accounts or who normally do not get bank loans for their short-term credit needs, persons 

not only among the most eager to have credit opportunities and to build credit histories, but also 

among the most vulnerable. The bills' supporters want to take the market shares that their 

4 
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competitors havc by being allowed to slash their costs and thus under-cut our prices while 

retaining their profits (or increasing them) to out-compete ns with a federal charter and 

complete freedom from the enforcement of laws the States have enacted providing the jnice for 

their plans. 

These giant providers want Congress to give them this extraordinarily un-level playing 

field, and NPA's members hope you will have the good sense and respect for States' rights not to 

give industry supporters of these bills this charter bonanza. 

National banks have never been big players in the consumer credit market, except in their 

roles as issuers of credit cards, and leading up to the 2008 recession, in their roles in housing 

finance. Instead, local banks, credit unions, and state-licensed non-depository providers such as 

pawnbrokers have been the bread-and-butter providers of consumer credit, and particularly of 

installment loans and of short-term loans. Pawnbrokers are the major safety-net lenders to 

middle-class Americans. 

Ill. Specific Concerns about H.R. 1909 and H.R. 6139: Contrary to representations you may 

have heard, H.R. 6139 is just as much about offering a small number of potential providers of 

practically unlimited consumer credit products as is II.R. 1909. Both are go-anywhere, offeranything "perpetual hall pass" type of legislation. If anything, H.R. 6139 gives more authority to 

providers than H.R. 1909 does. 

A. Specific Concerns about n.R. 1909, which: 

'allows non-bank lenders to make any type of loan, consumer or commercial, with no dollar 

limits in any location or through any medium of their choice with virtually no regulation of the 

products or providers by any federal or state regulator; 

• limits ownership of non-bank charter holders to certain giant providers in the non-bank and 

bank sectors, and excludes all but the biggest players from holding charters; 

• allows charter holders to avoid making the Annual Percentage Rate (APR) disclosure required 

by the federal Truth in Lending Act ('rILA) since 1969, but keeps the requirement in place for 

other bank and non-bank providers; 

'allows charter holders to make loans larger than state law permits for lenders cutTcntly licensed 

under state law; 

• preempts all State laws and State law-writing authority, as well as State enforcement authority. 

with a preemption standard that is much broader than Dodd-frank's prcemption standard; 

• exempts federal charter holders from all State and local licensing fees, thus depriving them of 

revenues and transferring for these giant providers those state and local revenues to the OCC, but 

leaves their competitors subject to fees; 

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• overrides State legislation that bans payday loans as an exercise of the "police powers" thatlhe 

States expressly reserved when they signed the United States Constitution, or that limits the 

temlS on which consumer products may be offered including frequency and conditions or rate 

caps, but leaves all such restrictions in place for all other providers; 

• eliminates all State powers to enforce laws. such as State fair lending laws. depriving States of 

their "police powers" over entities who market and provide products in their States; and, 

exempts charter holders from the CFPB's jurisdiction for all purposes, but leaves currcnt 

competitors under the CFPB' s jurisdiction for all purposes. 

B. Specific Concerns about H.ll.. 6139, which: 

• still limits charter eligibility to "qualified non depository creditors" and gives the oce 

discretion on approving charters for applicants; 

-requires only an initial, three-year plan to operate "its primary business activity" as serving the 

needs of underserved consumers and small businesses. This "three-year plan period" is the only 

period in which the applicant must explain how its products will be affordable; 

• exempts all products not part of the suite of products for "underserved consumers and small 

businesscs" from regulation and enforcement by the OCC as well as from regulation and 

enforcement by the States. Products outside the suites will not be subject to the supervision or 

regulation of the CFPB or other federal or State agencies; 

• allows persons in joint ventures or affiliated with charter holders to enjoy benefits comparable 

to those H.R. 6139 would give chmiel' holders, thus extending the bill's huge umbrella powers to 

providers not under thc supervision of the oee or eFPB, or, effectively, of the States without 

even the opPOliunity for a regulatory agency to approve their participation or to supervise them; 

and 

• gives charter holders additional authority to engage in activities that are "incidental, implied, or 

reasonably necessary" to carry out the express powers granted in the bill. The terms "incidental, 

implied, or reasonably necessary" are common terms in federal statutes and case law interpreting 

the National Bank Act and have bcen, particularly since 1960, the sources of greatly cxpanded 

powers being exercised by national banks. These boot-strap adjcctives, if retained in the tinal 

bill, would allow charter holders a wider expanse to engage in bank-like activities, with the 

exceptions of taking deposits or making commercial loans in excess of $25,000 small business 

loans, than even this broad bill appears to allow. These additional powers also suggest that the 

bill's real intent is to create unlimited powers beyond products for underserved consumers and 

small businesses without review by appropriate Federal or State regulators or and reference to 

State laws that currently regulate products in the general consumer loan marketplace. 

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c. n.R. 6139 does not: 

• require that "more affordable" consumer credit products be offered to consumers - indeed. 

because no restrictions or "rate caps" can he placed on credit products, there is no guarantee that 

consumers will realize any savings over the costs of products currently being offered by statelicensed competitors of the bill's industry supporters. The bill's repeated references to products 

that are "commercially viable" make the lip service to affordable products look even weaker. 

Nothing in H.R. 6139 actually requires "afTordable" terms fe)r credit products; 

• require many protections for underserved consumers. The exclusive protections described 

include (a) a once-annual oppOliunity for an underserved consumer who is unable to repay an 

extension of credit with a term of less than 120 days to obtain a no-cost extended repayment 

plan, (b) products or services with features to facilitate personal savings or to assist in enhancing 

credit records, but only "to the extent reasonably possible" which means no requirement at ali, 

and (c) a ban on consumer loans of 30 days or less or extensions of credit unless it has a 

"reasonable basis" for believing the consumer can repay the loan; 

• restrict the ability of payday or other lenders whose products have been restricted by the States 

to offer products similar to payday loans so long as they arc of at least 31 days' duration. Just 

call these stretch payday loans; 

• merely "replace" the APR disclosure required by the TILA since 1969. Rather, H.R. 6139 

exempts all consumer credit extensions with terms of one year or less from all of Subpart A of 

Subchapter I of TILA, among TILA's most valuable requirements. The result is the loss of 

useful credit shopping tools to the class of consumers who most needs to be educated about and 

engage in comparison shopping for credit; 

• do much to help consumers who arc underserved enhance their credit standing; 

• allow "only OCC approved loans" to be olTered. The bill's "deeming approved" provisions, its 

high hurdle for OCC disapproval of products, and the 45-day limit on the OCC's oppOliunity to 

disapprove products means that most products will come to the market just as the provider wants 

them to be and without explicit "approval" from the acc. The acc can disapprove products 

only based on a "fair and reasonable determination of the facts and circumstances regarding a 

proposed financial product or service" and must conclude that "offering the proposed product or 

service will significantly harm the interests of underserved consumers or small businesses." 

Thus, you should expect that OCC disapproval will be extremely rare, and that is what H.R. 

6 I 39's industry suppOliers hope will be the result of these requirements. 

• require the use of model forms or any other standardized replacement for TILA's model forms 

or standardized APR credit cost disclosures. Creditors will be free, unless directed otherwise by 

OCC regulations, to make "true cost disclosures" without restriction on how they present the 

infonnation; 

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o allows the oee to take action against providers of products "deemed approved" only to ensure 

that products will not significantly harm underserved consumers or small businesses; 

• give the OCC any authority to regulate any other product offered by thc chartcr holder if the 

product is not olTered for the underserved or small business markcts. Thus. H .R. 6139 provides 

no regulatory power whatsoever by any federal entity. and a complete escape from regulation 

and licensing by every unit of state government for all products other than those specifically 

designed for underserved consumers and small businesses. This bill would create. tor the 

majority of products that charter holders may seck to offer, a small group of unregulated credit 

providers; 

ogrant any approval, supervision, or enforcement powers to the CFPB or any other federal or 

state regulator of products offered by charter holders, contrary to representations made by 

industry supporters of H.R. 6139. This appears to include insured depository institutions and 

bank and thrift holding companies, which are currently subject to jurisdiction of the FDIC or the 

Board of Governors ofthe Federal Reserve System (Board); 

• provide any protection for consumers against offshore lenders or lenders based on or affiliated 

with sovereign tribes in the United States. The bill may help charters holders compete against 

these two classes of lenders, but it will not stop consumers who choose to use those lenders from 

doing so. It grants no new federal enforcement authority to thwart offshore lenders operating in 

the United States. and indeed weakens the States' ability to act to prevcnt remote offshore, tribal, 

or online lenders from taking advantage of consumers; 

·provide the CFPB authority to oversee the activities of charter holders. H.R. 6139 expressly 

grants exclusive "examination and supervision" authority over charter holders and the 

responsibility to "monitor" charter holders' compliance with the charter act and "all other 

applicable laws and regulations" enumerated in Dodd-Frank's section 1002(12) to the OCC. 

H.R. 6139 gives to the OCC exclusive power to prescribe regulations to govern products offered 

by charter holders with the very limited powers to disapprove or condition approval of 

products noted above; 

* give the oce power to regulate "unfair, deceptive, or abusive powers" that the CFPB has and 

the FTC also has; and 

o provide any the eFPB authority to enforce federal consumer financial protection laws (as 

enumerated in section 1002(12) of the Consumer Financial Protection Act of 2010, 12 U.S.C. 

5481(12) against charter holders. The only other entity with enforcement powers under H.R. 

6139 will be the attorneys general of the States (or the holders of equivalent State powers). State 

AG powers will be limited by H.R. 6139's "consultation" requirements except in "emergency" 

cases and the oee will have power to replace the State AG as plaintiff and remove the action to 

federal courts. 

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IV. Conclnsion: H.R. 6139 is H.R. 1909 in the Emperor's New Clothes. Both are sweeping 

changes in the diversified regulatory landscape for consumer financial products and services that 

exists today. Both are huge grahs of regulatory authority from the States without a national 

emergency or comparable national interest as justification. Both bills create a new bureaucracy 

inside the OCe. H.R. 6139 just grants less authority to the OCe. and more to the companies that 

support it and plan to become chartcr holdcrs. 

Both bills will permit chartcr holders to operate at vastly reduced costs by eliminating 

most of their current compliance obligations at the State and local levels, granting broad 

preemption powers over State and Federal efforLs to regulate their activities, and allow them in 

the not distant future to impose oligopoly powers in a vastly less-populated market. Providers 

with such powers eventually will be able to impose significant and permanent price increases on 

the consumers and small businesses they claim need their help to get credit once they undercut 

their competitors (that includes my business) and drive us from the marketplace. Both bills will 

allow elite companies and individuals to take economic benefit out of our communities and shift 

it to some other State. 

On behalf of the NP A and the tens of millions of consumers who arc our customers, 

consumers we know and work with when they need credit, and the thousands of individuals our 

members employ in local c.ommunities like yours, we urge subcommittee members - and the 

members of the Committee as a whole not to vote for H.R. 1909 or H.R. 6139. I mentioned 

my impression that these bills are a lot like the Emperor's New Clothes. But, down in northem 

Alabama, my customers would more likely say that these bills are like "pigs in a poke." And 

whichever of these analogies one uses - that pretty much sums up why the NPA's membership 

opposes these bills. 

Thank you for this opportunity to share the views of the National Pawnbrokers 

Association, which proudly represents independent, family-owned providers of pawn loans and 

tens of millions of consumers who use our services every year. We are proud contributors to the 

communities and consumers we serve. I respectfully request that this prepared statement be made 

part of the formal record for this hearing. 

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76120.017

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 

Hearing: Examining Consumer Credit Access Concerns, 

New Products and Federal Regulations 

July 24, 2012 

Chainnan Capito, Ranking Member Maloney, and Members of the Subcommittee: 

Thank you for inviting me to testify on better understanding the regulatory regime for nondepository creditors, and my views on Tl.R. 6139, the "Consumer Credit Access, Innovation, and 

Modernization Act." 

I currently serve as Vice President of Federal Affairs for the Center for Responsible Lending, a 

nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership 

and family wealth, by working to eliminate abusive financial practices. CRL is an affiliate of 

Self-Help, a nonprofit community development financial institution with a 30-year-track record 

of serving low-income, rural, women-headed, and minority families. Self-Help manages a total 

of $950 million in assets for approximately 90,000 lamilies in North Carolina and California. 

Tn my testimony today, T would like to emphasize the following three points: 

H.R. 6139 would circumvent the carefully contemplated supervisory, enforcement, 

and rulemaking authority of the Consumer Financial Protection Bureau (CFPB or 

Bureau) over certain non-depository financial institntions. 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 

earefully 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 

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themselves of weaker standards that would be used in the federal chartering process. The 

bill would also permit federal chartcr 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 (rILA) 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. 

1. H.R. 6139 would circumvent the CFPB's carefully contemplated supervisory, 

enforcement, and rulemaking anthority uver certain lion-depository financial 

institutions. 

The CFPB is the primary federal regulator with explicit supervisory, enforcement and 

rulemaking authority over large depository institutions and certain non-depository entities, 

including payday lenders. Title X o[ Dodd-Frank tasks the Bureau with consumer protection 

through rule writing, supervision, and enforcement to ensure thai markets allow borrowers to 

gain access to-and choice among-financial products and services that are fair, transparcnt, and 

competitive. 

Injust one year, the CFPB has begun to create sensible rules of the road for financial markets 

through a balanced and level regulatory playing field for market participants. Without such 

evenhandedness, consumers would be exposed to a financial marketplace rife with the very kinds 

of abuses that led to the financial crisis. The CFPB's supervisory purview over non-depository 

entities is prudently designed to improve the quality of services in this sector and enforce federal 

consumer financial law. 

H.R. 6139 poses a direct threat to the CFPB's ability to protect consumers. By enabling nonbank lenders to seek a federal charter under the oce, the bill would hamper the Bureau's 

oversight of some of the riskiest and costliest financial service providers in the marketplace. For 

instance, under the bill, the oce has the explicit authority to (I) review and approve financial 

products that charter holders plan to offer to consumers and (2) prescribe regulations containing 

standards regarding the product's approval. The bill directly conflicts with Section 1031 of the 

Dodd-Frank Act, which grants the CFPB express authority to prescribe rules to prevent creditors 

from engaging in unfair, deceptive, or abusive acts or practices (UDAAP). Under, H.R. 6139 

financial products might be approved by the OCC could also violate Dodd-Frank's prohibition 

against UDAAP. Such a scenario would present both a confusing and an incongruent regulatory 

framework-resulting in both agencies butting heads in federal court, after protracted and 

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intense inter-agency litigation. In addition, such a structure would create unleveled playing field 

between non-depository consumer credit lenders who are chartered by the OCC and those 

chartered at the state level. One of the key goals in establishing the CFPB was to create uniform 

standards that apply to all consumer tlnance providers, irrespective of charter. H.R. 6139 would 

undermine that. 

In addition, H.R. 6139'$ procedure for approving products tilts in favor of qualified chartered 

holders, with the OCC required to presume that a product was safe, unless it could demonstrate 

that the product would "significantly harm" borrowers. The OCC would have only 45 days to 

make such a determination. 

H.R. 6139 would also require the oce to conduct examinations and supervisory activities for its 

non-depository charter holders. This is, however, is not thc oec's primary mission, which is to 

safeguard depository tlnancial institutions, not protect consumers from deceptive or abusive 

lending practices. Indeed, this limited mission focus of the OCC was a reason why Congress 

created the CFPB in Dodd-Frank. 

As we saw in the mortgage crisis, the oce and other federal regulators were not effective 

concerning consumer protection. We also saw that, in the long-term, measures that could have 

been put in place to protect consumers (such as restrictions on paying originators more for 

placing borrowers in costlier and more dangerous loans) would also have been better for lenders 

and for the larger economy. The eFPB was created largely because federal consumer protection 

functions were widely dispersed among multiple federal regulators that were charged with 

protecting institutional safety and soundness. This meant that regulators were not able to 

adequately protect consumers, or even properly regulate the industries they oversaw with a longterm outlook on safety and soundness. 

While the CFPB's explicit mission is consumer protection, it is important to note that this focus 

is not inconsistent with the safety and soundness mission that other regulators have. Indeed, 

consumer protection and safety and soundness arc flip sides of the same coin. CRL's recent 

research that examincs marketing and pricing practices prevalent in the credit card industry 

before implementation of the CARD Act-··ancl the conncction between these practices and 

company performance during the recent economic downturn--illustratcs that strategies of 

maximizing short-tcnn revenue by using unfair or deceptive lending practices led to increased 

risk and lower profits during the downturn. undermining a bank's safety and soundness. l 

Common-sense curbs on unfair lending practices increase market transparency and bolsters 

firms' tlnancial strength. Accordingly, this benefits customers, investors, shareholders, and 

ultimately taxpayers. 

1 Joshua M. Frank, Predatory Credit Card Lending: Unsafe, Unsound for Consumers and Companies," Center for 

Responsible Lending, May 2012, available at: http://www.responsiblelending.org/credit-cards/researchanalysis/Unsafe-Unsound-Report-May-2012.pdf 

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H.R. 6139 also would establish a two-tiered financial regulatory system that would expose some 

households to risky. high-cost financial products offered by non-depository lenders that 

undennine their financial well-being. and could drive them out of the banking system. while 

consumers with access to mainstream banking services would enjoy the full protections of the 

CFPB. Both data and history tell us that communities of color. low-income and women-headed 

households are those who would disproportionately be targeted by these abusive tinancial 

practices. H.R. 6139 would ham1. not help. the un- and under-banked, pushing them further to 

the economic margins, as discussed in further detail below. 

2. H.R. 6139 would expressly allow DOD-depositories to evade 230 years' worth of state 

CODSDmer protectioD laws, liceDsiDg, aDd sDpervisioD that are essential to protectiDg 

vulDerable consumers from abusive financial practices. 

Under H.R. 6139. non-depository chmier holders would be able to offer financial product terms 

that some states have either expressly prohibited or heavily regulated--for instance, high cost 

payday loans. Marketed as short-term relief for a cash crunch, payday loans carry annual interest 

rates of 400 percent and are designed to catch working people in a long-term-debt trap.2 The 

structure (including high fees, short-term due date, single balloon payment. and collateral of 

access to a borrower's checking account) ensure that the vast majority of borrowers cannot pay 

off the loan when it is due without leaving a large gap in their budget. As a result, they are 

forced to take out new loans after paying the first one back. In fact, some payday lenders even 

offer a "free" no-fee loan to lure customers in, knowing that borrowers are so cash-strapped that 

most cannot afford to repay the principal in two weeks and will have to renew multiple timespaying multiple fees--in order to pay back the original loan. A 2009 CRL study found that 

typical payday borrowers remain in debt for much of the year, and the overall duration and 

amount of the debt increases over time 3 Well over 90 percent of payday loans involve 

borrowers who had another loan that same month----and the debt trap of 400 percent interest 

drives 40 percent of borrowers to eventually default 

States are the traditional regulator of most small loan products, including payday loans, offered 

in the U.S. In tact. state limitations on interest rates have existed for over 200 years. However, 

since the mid-I 990s, payday lenders affirmatively sought and were often granted special 

authority to charge over 300 percent APR on their loans. Since 2005. a counter-trend developed 

and no new state has granted payday lenders and other "short-tenn" lenders their needed 

exemption from traditional small loan laws and other regulations. [n fact, several states that had 

once allowed the tenns associated with a payday loan (triple-digit annual interest rates, short2 Center for Responsible Lending, "Payday Loans Put Families in the Red," Research Brief, February 2009, available 

at http://www.responsiblelending.org/payday-lending!research-analysis/payday-Ioans-put-families-in-thered.htm!. 

, Uriah King and Leslie Parrish, "Payday Loans, Inc.: Short on Credit, Long on Debt," Center for Responsible Lending, 

March 2011, available at http://www.responsiblelending.org/payday-lending/research-analysis/payday-Ioaninc. pdf. 

4 
78 


76120.021

term balloon payments) have since reversed their decision. These states join others that have 

never granted payday lenders authorizing legislation4 In addition, three states (Ohio, Arizona, 

and Montana) have, in recent years, approved ballot initiatives limiting interest rates on payday 

loans. All these initiatives passed by overwhelming margins. 

HR 6139 sets out some limited standards for consumer credit authorized under the bill. Similar 

provisions, however, have been circumvented by lenders who structure their financial product so 

as to escape the statutory protections. Payday lenders have attempted to escape these consumer 

protections. For example, payday lenders have attempted to evade similar provisions by offering 

loans one day longer than the minimum term, structuring loans as open-end loans and taking fake 

liens on cars in order to evade limits while still putting borrowers in debt-trap loans. 

And H.R. 6139 would also sanction online lending for charter holders by explicitly prohibiting 

any federal or state restrictions for internet lending. The bill also authorizes "rent-a-chartcr" 

arrangements, whereby charter companies can pass on their preemption to any affiliates and even 

third parties. 

Despite the harmful impacts of payday lending and states' efforts to rein in the financial abuses 

associated with this form of small-dollar credit, H.R. 6139 would pennit credit companies to 

circumvent state laws and would prohibit the federal financial consumer watchdog-the CFPBfrom acting to protect borrowers from harmful products. By obtaining a federal charter, nondepositories could exploit strong state and federal regulation in favor of weaker standards used in 

the OCe's chal1ering and oversight process. 

3. H.R. 6139 would roll back important federal credit protections for consumers. 

Since 1969, TILA has required creditors to disclose finance charges and APRs before consumers 

sign a loan, as a baseline credit-cost comparison measure. Payday loans, for instance, are subject 

to TILA's credit disclosure requirements. As a result ofT1LA's disclosure obligation, consumers 

are afforded an accurate way to gauge true lending costs across products. H.R. 6139 upsets this 

longstanding federal consumer protection by exempting credit companies from TILA's APR 

disclosure to all lenders for loans of one year or less. For instance, take two Joans--~lIle twoweeks in duration, with 10 new renewal lees-as compared to another loan, 20 weeks in 

duration, with only one fee. Both loans could be advertised as charging 10 percent fees, though 

the two-week loan would be far more expensive for consumers. This would result in a 

significant market-wide roll back of federal credit law. 

Conclusion 

H.R. 6139 would directly harm vulnerable borrowers, particularly the underserved, and should 

be opposed. Indeed this legislation offers nothing beneficial for consumers; on the contrary, it 

4 Other jurisdictions include New York, New Jersey, Connecticut, Maine, Pennsylv.,mia, Georgia, Massachusetts, 

West Virginia, Vermont, and Maryland. 

5 
79 


76120.022

would lead to direct consumer harm-and its passage would set a precedent for many other 

companies to also seek to be excluded trom the nation's consumer protection watchdog. As a 

result, we urge you to actively oppose the legislation. 

Thank you again for the opportunity to testify, and I look forward to answering your questions. 

6 
80 


76120.023

U.S. HOllse Subcommittee on Financial Institutions and Consumer Credit Hearing on: 

"Examining Consumer Credit Access, Concerns, New Products and Federal Regulations" 

July 24, 2012 

By: G. Michael Flores, CEO 

Bretton Woods, Inc. 

Good morning. I'd like to thank the chairman and members of the subcommittee j()r the opportunity to 

testify today on a topic of growing concern to many in this room and one that I have followed closely 

over the past four years. My name is Michael Flores and I am CEO of Bretton Woods, Inc., a 

management advisory firm specializing in financial institutions including banks, credit unions and 

alternative financial services providers. With more than 30 years of experience, I have witnessed the 

evolution in the financial services marketplace. In 2008, this country woke to the worse economic crisis 

since the Great Depression. Four years later, I believe we have reached a decision point in how to deal 

with the credit needs of tile 60+ million of Americans marginalized by the traditional banking model. 

Based on my most recent study, "Serving Consumers' Needs li,r Loans in the 21 st Century," I would 

argue that consumers, notably those in the low- to-moderate-income range, would stand to benefit irom a 

new financial paradigm that recognizes the potential of alternative financial services providers. Many, 

but certainly not all of these consumers arc part of the 60+ million Americans who are either unbanked or 

underbanked and who present a particularly complex challenge. In addition, there is a growing class of 

debanked or moderate- to-middle-income consumers who have chosen to leave traditional banking 

because of increased fees or because they need an unsecured personal loan, a product no longer offered by 

most traditional banks. 

Access to eredit has been an ongoing problem that has largely gotten worse with time. Difficulties for 

unbanked and undcrbanked consumers to obtain smaller-dollar loans have been the subject of increasing 

debate, including in a number of congressional hearings. But it's not just about Iow- to-moderate-income 

consumers because the fact is bank customers, many with what you and I would consider healthy bank 

accounts, are coming up short as well. 

Since the 1980's, banks have used credit card lines, home equity lines and overdrafts to provide consumer 

credit. These are now less viable due to the poor economy and increased regulations. Overall, the 

community banks' focus on consumer lending has declined signincantly since 1985 according to the 

FDIC, and during that period, unsecured installment loans all but disappeared from bank product suites 

due to profitability, risk and regulatory concerns. 1 Today, loans of under $5,000 are all but nonexistent 

and with good reason. Given their legacy cost structure and slow adoption of new technologies, banks 

aren't capable of making loans of under $5,000 profitably and so they don't. . 

New federal regulations have played a role in adding to the burden of maintaining growth or at the least, 

stability and as a result, banks are examining their customer base. As my study details, the traditional 

banking business model relies on scale to be profitable. According to JPMorgan Chase, about 70 percent 

of customers with less than $ 1 00,000 in deposits and investments will be unprofitable following 

1 "Community Banking by the Numbers," FDIC Community Banking Research Project, Feb. 16,2012 
81 


76120.024

regulations that cap lenders' fees.' Given the level ofinveslment required to succeed in the 21" Century, 

it is only rational that banks target the most profitable customer segments. The potential fall out is 

significant and will likely add to a further retraction ill the credit market. Limiting consumer and small 

business credit has a detrimental impact on local economics. 

Consumer fimmcial services are clearly at a crossroad and I believe that a new financial regulatory 

structure is warranted. The answer points to the capabilities of alternative financial services providers. 

Many have invested in more efficient and cost effective technology, but costs associated with regulatory 

variations in 50 states naturally inhihit their ability to otTer a range of standard products particularly in the 

$750 to $5,000 longer-tenn loan range. Differing states' regulations deny altemative financial services 

providers the ability to achieve scale thereby reducing costs now associated with operating in all 50 states. 

Studies of the impact of restrictive regulations in other industries, most particularly the lack of federal 

preemption, repeatedly show these regulations limit options and increase costs to consumers. There is 

room for both federal and state approved lenders as is the model for state and national chartered banks. 

I would further argue that the lack of a standard product nationally, in and of itself, creates "disparate 

impact" on consumers. That is, nothing more than a state line can cause consumers to have to meet their 

specific credit needs with less than optimal and more expensive altematives. 

I understand and appreciate the impact of regulations on the financial services industry, and while not a 

policymaker, I close by suggesting that the simplest way to expand access to credit is to bring all 

altemative financial services providers under the tent offederal regulatory licensing and oversight. 

My thanks to the chairman and the subcommittee for your time and I would be happy to answer 

questions. I am submitting my study for the record. 

2 "JPMorgan Sees Clients with Less Than $100,000 Unprofitable," Laura Marcinek, Bloomberg, Feb. 28, 2012 
82 


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Serving Consumers' Needs for Loans 

in the 21st Century 

June, 2012 

© Copyright, 2012 by Bretton Woods, Inc. All RIGHTS RESERVED. Any use oftext, graphics, and analyses 

materials, including reproduction, modification, distribution or republication, without the prior written 

consent of Bretton Woods/ Inc" is strictly prohibited. AI! references are used by permission by the authors. 
83 


76120.026

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST C 

Table of Contents 

Contents 

About Bretton Woods, Inc.. . ................ 3 

About the Author .. ., 3 

Executive Summary,,, ............................................................. "n 4 

State of legacy Banking.. . ............... 5 

Consumer Credit ". . . ... ,9 

Trends in Unsecured Consumer Installment Credit.. ............................ " ... 10 

Types of Available Consumer Credit.. . .................... "" ............ " ........ 12 

FDIC Small-Dollar loan Program.. . ..................................................................... 13 

Consumer loan Activity.. . ............................................. 14 

Relationship of Consumer Credit to Economic Growth .......................... « ..................................................... 15 

Sizing the Market .. 

Underbanked Individuals .. 

Financial Services Ufe Cycle .. 

Alternative Financial Services ... 

Role of Technology ... 

. ....................... 16 

. ..... 16 

. ................................................................... 18 

. ................................................................................................... 20 

. ............................................................................ 23 

The Future... . ......................................................................................................................... 26 

Exhibit 1- AFS Regulators... . ......... 27 

Small Loans.. . .................................................................................................... 27 

Payday loans... . . ..... « ................................................................. 28 

Check Cashing.. .. ................................. 30 

Exhibit 11- Minimum Loan Calculator .. . .............................................................. 32 
84 


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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CEN 

About Bretton Woods, Inc. 

Bretton Woods, Inc. is a management advisory firm specializing in financial institutions. Since 1988, Bretton 

Woods, Inc. has provided value~added services to its clients by applying business, technology, payments 

and earnings improvement strategies. 

The firm has worked with clients on payment strategies, unbanked and underbanked issues and trends 

from cash and checks to card and electronic transactions. The work with insufficient funds and overdraft 

fees in banks and credit unions includes credit advances on debit cards and other alternative financial 

services offerings. 

The firm continues to work with commercial banks in re-engineering efforts to attain profitability in today's 

regulatory environment. 

About the Author 

G. Michael Flores, CEO of Bretton Woods, has more than 30 years of financial institution experience 

through his employment in banking as well as consulting. Flores' consulting work focuses on the areas of 

strategic planning, fee income strategies, payment systems, process improvement through enabling 

technologies and alternative financial services. 

Flores has testified before House and Senate sub-committees on underbanked issues raised in white papers 

he authored on alternative financial services, spoken to industry groups and authored several articles for 

industry publications. He has been a faculty member with the Pacific Coast Banking School in Seattle, 

Washington and the Graduate School of Banking in Madison, Wisconsin where he taught Technology's Role 

in Community Banking curriculum for bankers in the graduate school. 

Flores received a BBA in Accounting and Management from the University of Notre Dame in 1973 and in 

1974 attended the Commercial Lending School at Georgia State University. He is a Certified Mediator with 

the Center for Dispute Resolution} Boulder, Colorado and also with the American Arbitration Association in 

Atlanta, Georgia. 
85 


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SERVING CONSUMERS' NEEDS F 

Executive Summary 

Bretton Woods, Inc. has been advising clients and researching payments and small dollar loan alternatives 

since 1999. The residual impact of the 2008 economic crisis and the ensuing legislative response have 

resulted in a financial services market unable to adequately meet the credit needs of an increasing number 

of Americans. An estimated 73 million low- to-moderate-income consumers are either unbanked Of they 

are underbanked, defined as having a checking or savings account but relying on alternative financial 

services such as payday loans, rent-to-own agreements or pawn, Less well understood is a growing class of 

"debanked" or moderate- to-middle-income consumers who have chosen to leave traditional banking 

because of increased checking account fees or they need an unsecured personal loan, a product no longer 

offered by most traditional banking institutions. Together, the unbanked, underbanked and debanked 

constitute an enormous challenge for regulators and the financial services industry moving forward. 

This report looks at the historical perspective of the traditional banking system, explores the credit market 

including trends, options and providers and details the relationship of consumer credit to economic growth. 

A comprehensive examination confirms a void in current banking and alternative financial services, in 

particular for unsecured installment loans from $750 to $5,000, and concludes that there is a demonstrated 

need for a more efficient and innovative financial system. 

Key Findings 

Consumer loans under $5,000 are unprofitable under the traditional banking model and as a 

result. the credit needs of low- to-moderate-income individuals and small businesses are no 

longer fulfilled by most community banks and credit unions. Impediments include the industry's 

legacy cost structure, reliance on brick and mortar service delivery outlets and slow adoption of 

new technologies embraced by younger consumers. 

Some alternative financial services providers have built more effident and cost effective 

technology, but typically offer only low-dollar products which are limited in availability due to 

differing states' regulations. Impediments include inconsistent product offerings among states, 

elimination of certain products based on state law, and increased compliance costs for companies 

operating in multiple states. 

A new banking model for low- to-moderate~income consumers must be built to better serve this 

community which has been marginalized by traditional banks_ While alternative financial services 

providers may serve as a foundation for a new consumer banking model, the myriad of state 

regulations inhibit the introduction of a standard product. Studies of the impact of restrictive 

regulations, including the lack of federal preemption, repeatedly show these regulations limit 

options and increase costs to consumers. 
86 


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SERVING CONSUMERS' NEEDS FOR LOANS IN TilE 

State ofLegacy Banking 

Throughout the history of mankind, paying for goods and services has evolved from barter in various forms 

to the minting of coins and the production of currency to digitized money. 

The advent of banks as a financial intermediary between savers and borrowers has also evolved from the 

stately marbled edifjces to a more self-service model with ATM's, debit and credit cards and mobile 

banking. 

Traditional banks are maintaining all ofthese service delivery elements at a significant cost. Addingto 

these costs are the additional regulatory burdens that considerably hamper community banks, those banks 

under $1 billion of assets, There are 6,290 commercia! banks under $1 bi!lion as of December 31, 20111. 

They represent the following: 

93% of all banks 

17% of all assets 

21% of all bank employees 

20% of all loans 

19% of total deposits 

20% of interest income 

28% of interest expense 

14% of deposit service charges 

18% of premises costs 

13% of net operating income 

FDIC data from December 31,2011 indicate that banks under $1 billion of assets are much less efficient 

than larger banks. The efficiency ratio (noninterest expense, less the amortization expense of intangible 

assets, as a percent of the sum of net interest income and noninterest income) for banks over $1 billion is 

60.26% versus 71.12% for banks between $100 million and $1 billion and 78.11% for banks under $100 

million. In essence, it costs smaller banks more to generate a dollar of revenue. 
87 


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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTURY 

The following chart indicates the elements of profitability for these banks based on December 31,2011 

FDIC data. 

429% 4,88% 

0.67% 0.95% 

2.01% 1.12% 0.97% 

3.54% 3.97% 3.43% 

0.87% 0.54% 0.57% 

0.90% 0.59% 0.61% 

1.28% 0.71% 0.79% 

8.06% 5.03% 5.91% 

2.91% 0.22% 2.43% 

61.19%' 78.11% 70.12% 

B.48 3.47 4.06 

63.90% 95.7{J% 58.ge% 

11.12% 11.59% 10.58% 

These community banks afe at a dear disadvantage with higher interest expense, !ower service charges and 

lower operating income than the 500+ banks over $1 billion. A dear indicator that larger banks benefit 

from scale is the amount of assets ($ million) supported by employees. For banks over $1 blllion, one 

employee supports almost $7 million of assets versus $4 million of assets per employee for banks between 

$100 mi!!ion and $1 billion, and $3.5 million of as.~ets per employee for banks under $100 million. 

The disparity is even more profound when you consider that the top 50 banks represent .65% of all banks 

but control 65% of al! deposits. Large banks were, on average, 12 times larger than community banks in 

1985. The difference has grown to 64 times in 2010. 
88 


76120.031

SERVING CONSUMERS' NEEDS FOR LOANS IN THE" ,e'rr"'W","DV 

BearingPoint produced a white paper 'on "ARE YOU TRANSFORMING OR JUST TRANSACTING? THE MODEL 

FOR THE 21ST CENTURY RETAIL BANK". The following table highlights the changes banks must pursue to 

survive: 

CUSTOMER 

SEGMENTATION 

CHANNEl.. 

5fR\HCf: 

SJlJH 

(OMPUMfCEJ' 

RISK 

PAYMENTS 

OPERATIONS. 

~ n-{JOuct hC'J:~ !O::!k:>;. ~:lm~ig~ k, NiI('nh 

~ 1Jn,;oord1m1~ ~r>th~""m>!s 

" Open !oep bet~r:. IT"~~~'9 llnd",.~ 

~ ->legcli!!t:iurt~cijk r'1';?i:lItinS 

w M.:l~\J .. 1!9·~",ci:<hreHli!l<;ed dlIt~ nM~$.l!;;! 

21ST CUtTUR'( 

~ ltbW'Iy t" ,~,.;r;dl1~f.>-;'mp pmdoct with I1:!pid tinoo"tH\'lllrk!'t 

for 1I~" pn:xiiurt:; "ntt :b~;t'f \u offer tm1omtt~le- ~lX:!UCh 

Banks are trying to serve two constituencies. In addition to older customers who still want to use bank 

branches and paper transactions, banks are attempting to build a more virtual service delivery model for 

younger consumers. Many in the industry question the viability of community banks under $1 billion in 

assets. 
89 


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SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21ST CE,N"TURYI 

Only the largest banks with the necessary resources wi!! be able to make the changes outlined. The 

traditiona! banking business model clearly relies on scale to be profitable. Given the level of investment 

required to succeed in the 21'1 century, it is only rational that banks target the most profitable customers 

segments. 

According to JPMorgan Chase & [0.3

: 

" ... said about 70 percent of customers with less than $100,000 in deposits and investments will be 

unprofitable following regulations that cap lenders' fees." 

The biggest US banks are grappling with lost revenue from regulatlons that cap debit interchange 

fees and overdraft charges, making customers with low deposits more expensive for lenders to 

manage. JPMorgan, run by CEO Jamie Dimon, sees its greatest opportunity with affluent customers 

that have more relationships with the company. 

"Lost revenue has to be replaced with higher share of wallet and customer penetration," Maclin 

said. "You have to get your costs and where you spend your time, to the fullest extent possible, 

more in line with where the opportunity is," 

3 http://www.b!oomberg.com(new$/2D12-02-28npmorgan .. vL~-cHents-'<Ylih-!eS2:.t!lliD.::..lQQ::..Q.QQ1.9.:ln.~~t.::.<.l~: 
90 


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SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21S'f CEN'fUllY 

Consumer Credit 

Since the 1980's banks have used credit card lines, home equity lines and overdrafts to provide consumer 

credit. Overall, community banks focus on consumer !ending has declined significantly since 1985 

according to the FDIC. 

Change in percent share among main cornrnunity bank 

specialty groups, 1985-2010 

Percent Df All Community !nsWuhons 

30% 

7.0% 

Source FDIC Communrty Banking Re:o;e,;:Jf(:h Project 

During that period, unsecured installment loans all but disappeared from bank product suites due to 

profitability, risk and regulatory concerns. 

nf m u' dl 
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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST r"'''''H''V 

Trends in Unsecured Consumer Installment Credit 

The following data from the Federal Reserve Bank of Richmond5 depicts total debt ba!ance and its 

composition from 1999 to 2011. While tota! consumer credit has more than doubled, unsecured consumer 

installment credit has fallen from 9% to 3% of the total. 

'r JiJlions of Dollars T"rillions of Dollars 

·15 ·15 ~ Mortg;;rg:e .. HE Ruvolving 

10 

5 

o S9:Q! OO:Q1 0"1;01 02'Q'J 03:0 I 04.Q1 {ls.a-! 06:Q'J 07:Q1 08-Q1 O~LQ1 10:01 1 '1;01 

Source' FRBNY Consumer Credrt panel.lEqwfilX 

Additionally, delinquent balances by loan type for unsecured consumer credit have remained fairly stable. 

Billions of Dollars 

450 

400 

350 

300 

250 

200 

150 

100 

50 

o 

Elillions of Dollars 

Source.' FRBNY Consume,-Credlf Panei/EqUlr"rr 

450 

400 

350 

300 

250 

200 

·150 

·100 

50 

o 
92 


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SERVING CONSUMERS' NEEDS 

Unsecured installment credit has been supplanted by credit cards since 1989. 

50% 

45% 

40% 

~ 35% 

30% 'E 25Q,,, ~ 

0 20'?'b 

?f!. "15"':'0 

10% 

5~1O 

O'?f. 

1989 <1998 

Source: SlIrvey of Consumer Finance 2007 Chartoook 

2001 

9 credit cards 

!!lI Other instaiJment (non auto, 

non education) 
93 


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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 

Types of Available Consumer Credit 

The following outlines the types of available consumer credit. Auto and home loans are not included since 

the focus of this study is on loans for purposes other than the acquisition of longer term assets. 
94 


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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST 

Credit card, bank overdrafts and home equity lines of credit have substantially replaced installment !oans 

due to the more cost efficient means of delivering these types of credit and the tax advantage of home 

equity advances. Economists from the Federal Reserve noted "revolving credit, particularly credit card 

debt, has substituted for small installment loans because of its ease of use and availability ... ,,6 

Credit cards appear to be the primary source of !ow.-dollar, unsecured credit for consumers, but not 

necessarily the best choice in some situations. That is, many consumers would prefer to match a loan for a 

specific need with a defined payback schedule. Credit cards make it too easy to default to the minimum 

payment and are subject to a change in terms - both which extend the cost of credit well beyond a fixed 

payment term, 

FDIC Small-Dollar Loan Program 

Most banks do not offer unsecured !ow~dollar consumer ioans, In our consulting practice, we have advised 

banks since the 1990's to set a minimum loan amount that can profitably be offered to the consumer. Our 

break-even model indicates loans of $5,000 are the minimum loan amounts that can be profitable. The 

amount varies based on the unique cost structure ofthe bank, To address this issue, banks offered credit 

cards and overdraft programs to fill the need for unsecured consumer credit. Consumers with homes could 

use HElOCS (home equity lines of credit) for secured loans, but with the dramatic loss of real estate value, 

HELOCS are no longer a viable option for many. 

In February 200S, the FDIC began a two-year pilot project to review affordable and responsible small-dollar 

loan programs in financial institutions. The pilot was a case study deSigned to illustrate how banks can 

profitably offer affordable small-dollar loans as an alternative to high~cost credit products such as payday 

loans and fee-based overdraft protection. 

An excerpt from the report discusses the costs associated with offering this product: 

" ... pilot bankers indicated that costs related to launching and marketing smal/-doffar Joan programs and 

originating and servicing small-dollar loans are similar to other foans, HoweverJ given the small size of SOl.s 

and to a lesser extent NSDLs; the interest and fees generated are flot always sufficient to achieve robust 

short-term profitability (emphasis added), Rather, most pilot bankers sought to generate long-term 

profitability through volume and by using small-dollar loans to cross-sell additional products." 

In the longer term, (lAbout three-quarters of pilot bankers indicated that they primarily used smaJJ~dollar 

loans to build or retain profitable, long-term relationships with consumers and also create goodwill in the 

community, Afew banks focused exclusively on building goodwill and generating an opportunUy for 

favorable Community Reinvestment Act (eRA) considerations, while a few others indicated that short-term 

profitability was the primary goal for their smafl-dollar foan programs." 

It is clear that on a stand-alone basis these loans were not profitable to originate, underwrite and process. 
95 


76120.038

SER~'INC; CONS(IMERS' :NEE 

This is consistent with our models that indicate that individual consumer loans under $5,000, depending on 

cost allocations, are unprofitable for the traditional bank to offer. Exhibit II depicts a model that only 

considers direct costs of origination and processing with no overhead allocation for systems, space, 

compliance and management. The minimum loan amount is just over $5,000. 

Consumer Loau Activity 

Key findings according to an Equifax press release7 in July 2011 stated: 

Auto 

Auto loan originations rose nearly 17 percent year~to-date in Apri! and are up nine percent monthover~month. While both banks and captive financiers are originating more auto loans, banks are 

being much more cautious in the subprime sector. CaptIve finance sources (e.g., Ford Motor Credit, 

etc.) issued almost 25 percent of new loans to buyers with scores under 600 in April, The 

comparable bank subprime number is about eight percent. 

Credit Cards 

Notable within the data is the rebound in the number of bankcard originations to subprirne 

borrowers, with an 80 percent increase in originations for April 2011 vs. April 2010 alone. New 

subprime bankcard origination !evels for January-April 2011 are up more than 66 percent over 2010 

levels. This is of note when compared to the 63 percent YQY (Year over Year) decrease the industry 

witnessed for the same period from 2008 to 2009. Total new bankcard limits have risen as well, 

with increases of more than 27 percent (January - April 2011), and new subprime bankcard credit 

limits experienced an increase of 68 percent. 

Consumer Finance 

New consumer finance credit loans grew 3.5 percent year-to-date and two percent month-over·· 

month in April, and !ike bankcards and autos - show increases in subprime. In fact, loans to 

customers with scores below 599 - 41 percent are up about two percent over 2010 and almost 10 

percent over 2006. 
96 


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SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21 ~1r rl'N1rlll>V . 

Relationship of Consumer Credit to Economic Growth 

Daniel Alpert, Managing Director of Westwood Capital, llC8

, analyzed the growth of consumer credit which 

is growing at the highest rate in the last decade. The following chart depicts the relationship trend 

between consumer credit and retail spending since January 2003, 

Three Month Moving Average Growth in COl'1SlImer Credit Outstarnllng & Retail (Seatonally Adjusted) 

." 

~ , u 

, ;; 

J i 

E 

~ ~ 

~ 

" 

_3 Mi.), Avg. Can",mN(redtt (,rnwth (arjj) _01 Mo. Avg. Retai!SJ!<:"S Growth (adl) 

Some would argue that that too much consumer credit is harmful to both the individual and to the 

economy, but access to credit is a necessity to most. Credit is useful not only when the individual's 

transaction demands are uncertain but also when the individual tries to plan purchases. Credit provides a 

too! against unanticipated changes to income or spending and for financing transactions where sales or 

other promotions can reduce the overall cost of a transaction, 

Utilization of consumer credit could increase savings and provide consumers with the ability to purchase 

goods or services at an earlier time period or fulfil! other needs when cash is not available. 

Use of credit, savings or increased wages drive consumer spending. One argument is that excess leverage 

by consumers helped to fuel the financial crisis beginning in 2008. There are, however, economists who 

state that consumers' access to credit is the quickest way to spur economic growth. From a Reuters article 

dated January 9, 20129

: 

"Outstanding consumer credit increased by $20.37 billion during the month, the Federal Reserve 

said on Monday. That was the biggest gain since November 2001 and nearly three times the 

median forecast in a Reuters' po!L 

o 2 
97 


76120.040

SERVING CONSUMERS' NEEDS FOR LOANS IN T ..... ?1"Tr"'~T1ITl>'V 

"Revolving credit, which mostly measures credit-card use, increased $5.60 billion, a third straight 

monthly increase. 'Credit growth is a positive sign for the recovery in that it signals increasing 

demand and willingness to spend,' said Paul Edelstein, an economist at lHS Global Insight in 

lexington, Massachusetts ... " 

Sizing the Market 

Underbanked Individuals 

The most widely quoted metric for the number of unbanked and underbanked in the United States comes 

from the 2009 FDIC National Survey of Unbanked and Underbanked Households. It stated there are 9 

million unbanked and 21 million underbanked. An update to this report is due to be released later in 2012. 

A report from Core Innovation Capita! and CFSl 10 estimates the number of unbanked and underbanked to 

be 60 million. The U.S. Posta! SelVice Office of Inspector General published a reportl1 in October, 2011 that 

estimated 40 million households (73 million individuals) are either unbanked Of underbanked. 

Data 13 developed by the Washington Credit Union League found: 

One unbankable baby born every 7 seconds 

One bankable/account-holding adult death every 13 seconds 

One unbankable international immigrant every 27 seconds 

Net gain of one unbankab!e person every 11 seconds or 2.8 million every year 

10 http://cfsinnovation.com!system/fiies/09-11 %20Marketscan final.pdf 

11 U.s. Postal Service Office of Inspector Genera! October 3,2011 

Digital Currency: Opportunities for the Postal Service RARC-WP-12-001 

12b~tt~P~:/!~W~W~W~.~U5~P~50~ig~·giO~V/~fu~ia~fi~'e~S!~R~AR~C~.W~P.~"~2.~O~Ol~.P~d~i~~~~t-_________ ~ ______________ __ 13 h;;l;i 
98 


76120.041

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTUR 

A report 14 by Core Innovation Capital and CFSI, 2010 Underbanked Market Sizel shows the annual growth of 

services used by the underbanked from 2009 to 2010. 

\,. 

Sl< 

$14-

$2l 

~ $W 

i1 ,)$ 

~ $" 

~ II< 

" >ll II 

.!.' $I, 

sa 

16 

$4 

12 

" 

Umlerbanked Market Growth 2009-2010 

Categories without strong historical data were exdUd,€ __ d __ , _________________ , 

0E Credft= 2% 

n; Payments"" 6% 

2010 Uod~banked MlIrk~1 Sil<! Estimate: Fees &: Interest 

,,«Ill ,_ill> D<j>O>ll ~. 

fllhdt, l:\od C;~ft fl,lr\ld~ into 

.il:f1Qtnoer tefm men .as. t.a~h or 

~l't\·t.mt'jfl'i,fde:(. 
99 


76120.042

SERVING CONSUMERS' Nt:EI)S FOR !.DANS IN THE 21!>T C=E~ITlJIRY 

Financial Services Life Cycle 

Many tend to think of moderate~income consumers in terms of individual services rather than a holistic 

view, That is, these consumers have needs for a variety of financial services and these needs tend to be 

cumulative over a lifetime. 

A studl5

, "The Regulation of Consumer Financial Products: An Introductory Essay with a Case Study on 

Payday Lending", with Howell Jackson, Brigitte Madrian, and Peter Tufano, Chapter 7 in Nicolas P. Retsinas 

and Eric S. Belsky eds. Moving Forward: The Future of Consumer Credit and Mortgage Finance, Brookings 

Institution Press, dated September 2010, quantifies the financial holdings by income strata. 

The following charts depict families in the lower-to-moderate income strata whose holdings include 

transaction accounts, CD's, savings bonds, stocks, pooled investment accounts, retirement accounts and life 

insurance. Installment and other non-real estate consumer credit are the primal)' credit drivers for these 

income strata. 
100 


76120.043

By,ncomll 

l"'ft""''''''''' 

All f<nl.n,,~ 

By=",-.-

p~r~=td", 

SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21ST CE 
101 


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SERVINGCONSUIME'RS'NEED!IF()RlLO!\NS;INTHIE2:1s'rc 

Alternative Financial Services 

It is clear that the traditional banking, with community banks and credit unions meeting credit needs of 

consumers and businesses funded with insured deposits, will not work for a growing number of consumers. 

Consider a National Bureau of Economic Research published paper16, "Financially Fragile Households: 

Evidence and Implications," which found that approximately one-quarter of Americans report that they 

would certainly not be able to come up with $2,000 in thirty days, 

It is our contention that banking services not just forthe 60 million underbanked, but also forthe 

moderate-income, debanked consumers, must begin with a dean slate. Alternative financial service 

providers have built a more efficient, cost effective, technology-driven model to serve their constituency, 

the moderate-income consumer. 

World Acceptance Corporation, for example, reported in its 10Q SEC filing on December 31,2011, that 

general and administrative costs as a percent of revenue was 48.7% (cost to generate a dollar of revenue 

which is equivalent to banks' efficiency ratio). Due to the risk inherent with these loans, however, its 105s 

provision was 26.6% of revenue (note that World Acceptance operates in only thirteen states). 

AFS providers must operate more efficiently because of the higher risk in the market they serve. 

The-e momlu er.ded Xin~m.O!:.tb~.n.de.d 

.~,·~age.gro.tt!Oi!t\s«,:~ehable' 

A\'efl!genetklm;reccinble' 

:2ti.li~' 21..7% 

Genern1:mdadrnlnntrati:'e 48.7% 4JU% 

TI)Wint,':l:es!apen..'1:l 23% 3_-Mi'i 1.1% 

Opemm.g ~JIl'g1n l 2,t.7~'b- 28.1% 

Rettlfl:\<J!1a·;enJ.gea~(tr~12mooth~) U.4% ]3,.1% 

OiYke1q>eflfflDrat:quirN,net " 53 " Tobitlffke${atptricdencd) 1,12it 1,1::0 1,\l)4 
102 


76120.045

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 

By comparison, according to December 31,2011 FDIC statistics, there are 2,143 banks under $100 million in 

assets that have an average efficiency ratio17 (the cost to generate a dollar of revenue) of 78.11% and 3,633 

bank between $100 million and $1 billion in assets with an efficiency ratio of 70.12%. 

One common misperception is that alternative financial service providers are unregulated when, in fact, 

they are heavily regulated by the states in which they operate. Exhibit I, obtained from the American 

Financial Services Association (AFSA) and the Financial Service Centers of America, Inc. (FiSCA), !ists the 

various state regulatory requirements for consumer loans, payday loans and check cas hers. 

The myriad of state agencies and regulations create the following: 

Inconsistent product offerings among states 

Elimination of certain products based on state laws 

Increased compliance costs for companies operating in multiple states 

Our sampling of bank and consumer loan web sites indicates that there is a void in the market of unsecured 

installment loans, particularly loans under $3,000 with monthly repayment terms, not currently filled by 

either banks or alternative financial service providers, For example, the five largest banks that represent 

38% of all deposits in the United States offer the following: 

Credit Card Only ~~~------------"-----"-"-----"--+~pe~onaILOan"$SOO--$~S~O~,O~0=0--------------4 

{Must be an existing customer with other qualifying 

The reasons are straightforward - most banks cannot offer these loans due to their legacy cost structure 

and AFS providers are limited in their ability to provide a consistent product because of differing states' 

regulations. 

17 Noninterest expense, less the amortization expense of intangible assets, as a percent of the sum of net 

income and non interest income. 
103 


76120.046

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST 

Also, banks have moved out of the neighborhoods on the low- to-moderate-incorne consumer as depicted 

in this map of the New York metro area B , 

Absence of Bank Branches in Communities of Color 

New York City (2009) 

A repore4 from The Financial Services Roundtable, "The Compliance Function in Diversified Financial 

fnstitutions ll, dated July, 2007 is an excellent study in the analysis of the burden of sometimes conflicting 

regulations with unclear standards and expectations as weI! as lack of coordination among the agencies. 

One excerpt dearly defines the issue: 
104 


76120.047

Congress should consider moving toward a more productive form of federalism which properly 

balances state and federal interests. 

Uniform national standards and preemption of state laws should be considered in certain areas in 

order to of/ow financial services institutions to operate on an interstate basis without having to 

comply with multiple, conflicting laws. Any national standard enacted should ensure that consumers 

are adequately protected. 

Credit Unions have been touted as the vehicle to serve moderate income consumers. They still enjoy a tax 

advantage over commercia! banks but increased compliance costs and lack of scale imperii their ability to 

adequately serve the consumer. 

An article2S in the Credit Union Times dated April12} 2012 that recapped a meeting of the Credit Union 

Association of the Dakotas stated: 

" ... at a Sioux Falls roundtable, a string oftop managers from South Dakota credit unions and small 

banks complained that the 'mountain of new regulations-18,000 pages over the past three years 

coming out of Washington D.C.' is driving numerous mergers of smaller institutions unable to bear 

the cost. 

'''During 2011 we saw five credit unions--a!most 10% ofthe total-- involved in mergers and in each 

ofthe five mergers, management and volunteers cited regulatory burden as a primary reason to 

merge,' declared Schmidt who also serves as the state's chairman of CUAD's Governmental Affairs 

Committee. 

{{'I am sure that it isn't a shock to you Mr. Cordray or anyone else at the CFPB that credit unions are 

subject to substantially more regulation now than just a few years ago but what I think might 

surprise you is that of the 46 credit unions left in South Dakota, 24-~more than ha!f--have six 

employees or less,' said Schmidt. 'The wave of new regulations has overwhelmed the staffs of 

these small credit unions prompting them to look for mergers,' he said." 

While there is a place for !ow-dollar, short-term loans, the missing !ink are those personat unsecured loans 

up to $5,000 with a term up to 36 months and monthly payments at a reasonable rate. Since most banks 

are not offering these loans, alternative financial service providers are filling the gap based on individual 

state regulations. 

There is an opportunity either through strategic alliances or through vertical integration, for AFS companies 

to become a one stop shop for the financial services needs of underbanked and debanked consumers. 

Bretton Woods recommends that options be reviewed to provide better access to installment loan credit. 

Role of Techuology 

Financial intermediaries act as the proverbia! "middleman" by bringing together those with surplus funds 

who want to lend and those with a shortage of funds who want to borrow. 
105 


76120.048

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 

The bank, with its physical presence, provided a safe and secure facility for the deposit of funds as well as 

the knowledge of risk management to underwrite credit applications from those in need of loans. Banks 

also serviced these loans by processing payments and collecting delinquent accounts. 

The risks to this mode! are new enabling technologies. That is, the ability to match those with funds to 

those in need of credit. There are a number of fledgling entrants into this ecommerce space and the 

growth and acceptance of peer-ta-peer lending wHl very much depend on the positive (or lack thereof) 

experience of the participants. 

For the traditional banking system to succeed, it must embrace these new technologies. However, 

embedded processes, legacy technologies and cultural inertia can dramatically slow adoption. 

A typical consumer loan origination process can !ook like the following26 ; 

Any familiarity with Six Sigma or lean Process methodologies allows one to visualize a process flow and 

identify tasks and activities that either do not add value or can be automated for efficiency. 
106 


76120.049

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTURY 

New technologies can significantly simplify the process and eliminate many human interventions. 

Alternative Financial Service providers are typically not hampered with these constraints. An equally 

important issue is the industry's knowledge and understanding of its clients and its culture to provide 

service that a typical bank does not support. This is represented in a study v by the Kansas City Fed, "A 

Study of the Un banked & Underbanked Consumer in the Tenth Federal Reserve District" dated May 2010: 

" ... Participants reported turning to retailers before banks due to simpler identification requirement, 

more transparent pricing, no hidden fees or penalties and immediate funds availability ... " 

Another study28, "Public Policies to Alter the Use of Alternative Financial Services among Low~lncome 

households" by Rebecca M. Blank, University of Michigan and Brookings Institution in March 2008 stated: 

"Forma! financial institutions provide services that are iII~fitted to the financial needs of low-income 

households. About 40 percent of payday loan recipients have bank accounts, suggesting that their payday 

loan provides a service that is not available from their bank (E!liehausen and Lawrence, 2001). About half of 

payday loan recipients claim to have considered a bank !oan; many of these said that the payday loan 

involved an easier process; some also cited the convenient location of payday providers, Short-term loans 

to lower-income customers are simply not available through many local banks ... " 
107 


76120.050

SERVING CONSUMERS' 

The Future 

Consumer financial services are clearly at a crossroad. Traditional banks have marginalized the low- tomoderate-income consumer and the myriad of state regulations inhibit alternative financial service 

providers to offer a standard product, achieve scale and reduce costs by operating in all SO states in a 

consistent manner. 

Studies of the impact of restrictive regulation at a !o-cal or regional level repeatedly show these regulations 

limit options and increase costs to the consumer. For example, a research report, "The Economic Impact oj 

Eliminating Preemption of State Consumer Protection Laws", from the JOURNAL OF BUSINESS LAW, 200929 

states: 

Preemption generates many dear economic benefits for banks and their customers. 

Uniform national laws, and the court and regulatory determinations pursuant to them, have been used 

as a device to open markets, thwart state~sponsored protectionist measures, reduce the price of credit, 

increase the availability of credit, and increase the efficiency of national banks. Consumers, small 

businesses, and the U.s. economy have been the ultimate beneficiaries. 

Critics of preemption are misguided in their attempts to link instances of predatory lending associated 

with the subprime crisis to federal preemption of state consumer protection laws. The vast majority of 

subprime loans at issue were originated by finance companies that have been outside of the purview of 

federal bank regulation but subject to state financial regulation. Concerns that preemption risks the 

dissolution ofthe dual banking system are also misguided. 

Case studies from the US wireless and wine industries provide empirical evidence that the imposition 

of uniform, national regulations for interstate commerce increases economic efficiency. The implication 

is that any business, including banking, that crosses state boundaries should be regulated at the 

national level. 

From a policy perspective, elimination of preemption would jeopardize the significant economic 

benefits created by a uniform regulatory environment. However, preemption does not imply a laissez 

faire approach to regulation of the financial industry: advocating for preemption is not the same as 

advocating for deregulation. Po!icymakers should create new federal rules for the problem areas while 

taking advantage ofthe gains uniform national standards can offer the lending industry and the 

economy. 

Bretton Woods believes that a new banking model forthe low- to-moder;;:lte-income consumer must be 

built to better serve this community. Some community banks may be able to restructure their costs and 

offer solutions for this market but that is only possible with management making a commitment and 

possibly foregoing more profitable products and services. Many alternative financial services providers are 

narrowly focused on a few products and do not operate on a nationalleve!. AFS providers have built a 

more cost effective business model and may serve as a foundation for a new consumer banking model. 
108 


76120.051

SERVIN(; CeJNS:UJI! 

Exhibit I - AFS Regulators 

Small Loans 
109 


76120.052

SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21~Tr"'"TI""" ~:£~~ 

Payday Loans 
110 


76120.053

SERVING CONSUMERS' NEEDS FOR LOANS I 

fu,.:, 

;li" :.':h,,,: 
111 


76120.054

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST 
112 


76120.055
113 


76120.056

SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21S'r CIEWrUllY ~~~_ 

Exhibit n - Minimum Loan Calculator 
114 


76120.057

For Release Upon Delivery 

10:00 a.m., July 24,2012 

TESTIMONY 

of 

GROVETTA GARDINEER 

DEPUTY COMPTROLLER FOR COMPLIANCE POLICY 

OFFICE OF THE COMPTROLLER OF TilE CURRENCY 

Before the 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT 

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

July 24,2012 
115 


76120.058

Chairman Capito, Ranking Member Maloney, and members of the Subcommittee, I 

appreciate the opportunity to appear before the Subcommittee on Financial Institutions and 

Consumer Credit to discuss the Office of the Comptroller of the Currency's (OCC) perspectives 

on H.R. 6139 "The Consumer Credit, Access, Innovation, and Modernization Act" (hereinafter 

referred to as H.R. 6139 or "the bill"). The OCC recognizes the importance of providing 

underserved consumers greater access to innovative and affordable financial products and 

services, and through many routes we encourage national banks and federal savings associations 

to do just that. However, we are concerned that H.R. 6139 would hmi the very population of 

consumers that it seeks to assist, and would encourage the development of businesses with 

unsafe and unsound concentrations in financial products and services that have serious consumer 

protection, compliance, safety and soundness, and other risks including Bank Secrecy Act and 

Anti-Money Laundering (BSAI AML) concerns. 

The effective result of H.R. 6139 would be to create a class of federally chartered 

companies (National Consumer Credit Corporations, hereinafter referred to as "NCCCs" or 

"companies") focused on consumer credit products of the very nature and character that the OCC 

has found unacceptable based on consumer protection and safety and soundness concerns. In 

particular, it is our experience that the profitability of many of the types of small dollar, shortterm loans that NCCCs would likely seek to olTer is dependent on effectively trapping consumers 

into a cycle of repeat credit transactions. high fees, and unsustainable debt. I Other products that 

can help provide broader access to payment systems that NCCCs might offer, such as prepaid 

access cards, can raise other concerns regarding the management of money laundering risks and 

require extensive and costly oversight, as the Financial Crimes Enforcement Network (FinCen) 

I See also Uriah King and Ozlem Tanik, "Financial Quicksand: Payday lending sinks borrowers in debt with $4.2 

billion in predatory fees every year;' Center for Responsible Lending, November 30,2006. 
116 


76120.059

highlighted when it issued rules (0 address this concern. Yet, recognizing these significant 

compliance and safety and soundness concerns, H.R. 6139 would generally compel the OCC to 

approve an NCCC's proposed products or services within 45 days unless the OCC determines 

that the products or services would significantly harm the interests of underserved consumers or 

small businesses. This essentially requires the OCC to prove a negative consequence, based on 

proposed activities not yet conducted, against a backdrop where the OCC s experience teaches 

that the activities are harmful to consumers, risky, and in some respects, a brew for BSAIAML 

problems. 

A key premise ofH.R. 6139 is that high compliance and regulatory costs significantly 

impede firms' ability to offer small dollar credit products in a profitable and efficient manner, 

and that a federally issued charter would significantly lower such costs. The implied premise, 

however, is that those lower costs will result from lower compliance expectations applicable to 

an NCCC. 

We disagree with this premise. The bill will result in a decrease in protections for 

categories of consumers that may be the most vulnerable. We have ample evidence from the 

recent financial crisis that the goal of enhanced access to financial products and services must be 

coupled with assurances that those consumers are subject to meaningful consumer protections 

and that the firms offering those products and services must do so 011 a prudent, safe, and sound 

basis. In this regard, the Consumer Financial Protection Bureau (CFPB) has been provided the 

authority to issue rigorous, uniform, and nationally-applicable consumer protection standards for 

financial products and services. It is important that the types of products envisioned for NCCCs 

not he carved out of coverage ofCFPB-administered lending standards. My testimony provides 

a brief overview of H.R. 6139 and then more fully describes the OCC's key concerns about the 

2 
117 


76120.060

bill and the potentialncgative effect it could have on consumers and on the efforts that the OCC 

and other federal and state agencies have taken to safeguard consumers from lending products 

with predatory features. 

Overview of H.R. 6139 

H.R. 6139 would require the OCC to provide a federal chartcr to non-depository creditors 

(comp<mies chartered or licensed by a state and engaged in offering consumer and small business 

loans). The charter application would be reviewed and approved by the OCC pursuant to 

procedures established by regulation. Section 3 establishes general eligibility criteria for a 

company to be chartered as an NCCC, such as having adequate capital structure relative to the 

business plans of the company, and it provides that such critcria may be supplemented by 

additional criteria established by OCC regulation. Section (3)( c) of the bill permits an applicant 

to be owned or controlled by other entities, including depository institutions, bank holding 

companies, nonprofits, and consumer financial serviccs businesses. 

Under H.R. 6139. an NCCC would be permitted to enter into joint ventures and 

partnerships with other NCCCs. as well as with depository institutions, third-party vendors, and 

other parties to promote or facilitate providing its financial products and services. Section 3( e) 

provides that the OCC shall "encourage and facilitate" such joint ventures (without specifying 

any safety and soundness or consumer protection criteria). 

In addition to cbartering authority, section 3(e)(I) of the bill would require the OCC to 

conduct examinations and supervise NCCCs to assess their internal controls; evaluate their 

financial condition; determine if they are meeting the needs of under served consumers and small 

businesses; and monitor compliance with the requirements of the bill and all other applicable 

laws and regulations. In conducting its supervision of NCCCs, the OCC would also be required 

3 
118 


76120.061

to consult and coordinate with other federal and state agencies to ensure that supervisory 

activities, including examination schedules, are conducted in a coordinated and efficient manner. 

Section 3(e)(2) of the bill would require NCCCs to, among other things, make financial 

education infol1nation adopted by the OCC available to its customers; provide certain cost 

disclosures for loans of one year or less that section 5 of the bill would exempt from the Truth in 

Lending Act (TILi\); and offer underserved consumers who are not meeting the payments on an 

extension of credit by an NCCC with a term of less than 120 days, an extended loan repayment 

plan. An NCCC would be prohibited from accepting deposits; making commercial loans except 

for certain small business loans not in excess of$25,000; making consumer loans with a term 

less than 30 days; and intentionally extending credit in certain circumstances, including when the 

maximum principal amount of all credit outstanding extended by such NCCC to the consumer 

exceeds $5,000 (or $25,000 in the case ofa secured credit transaction). 

The primary business of an N CCC would be to offer products and services approved by 

the OCC. The OCC would receive a description of any products or services proposed by an 

NCCC, including how the product will help meet the credit needs of under served consumers or 

small businesses and be commercially viable (which the bill defines as expected to produce a 

reasonable economic profit). Under section 3(f)(2), the OCC would he required to prescribe 

regulations with procedures for the review and approval of such proposals, but the procedures 

may not include disapproval or conditional approval of a financial service or product unless the 

oce determines that offering the product or service will signi ficantly harm the interests of 

underserved consumers or small businesses. A proposal will he deemed to be approved if the 

OCC has not notified an NCCC of its decision within 45 business days after submission. The 

bill further provides that any such products or services approved by the OCC for underserved 

4 
119 


76120.062

consumers and small businesses may be ofTered to other consumers and small businesses. 

Section 3(g) would providc for the payment to the oee of annual fees to ofTset the cost of 

carrying out the provisions of the bill. 

OCC Concerns with H.R. 6139 

The oec's fundamental concem is that H.R. 6139 would provide special status and 

federal benefits to companies and third-party vendors that would primarily engage in offering 

credit products and services that the oce has previously found to be unsafc and unsound and 

unfair to consumers. These include payday loans, tax refund anticipation loans (RALs), and 

automobile title loans. Our supervisory experience with these products is that they are based on 

a business model that is not sustainable from the perspective oflow and moderate income 

customers--high fees, repetitive use, high defaults, and severely weak legal compliance. Indeed, 

the very products and services this bill is designed to encourage often result in significant abuses, 

and, in fact, the OCC took enforcement action related to one ofthe proponents of this bill (Cash 

America) for such abuses. 

Against this experience, we are concemed that H.R. 6139 would negate many actions that 

Congress, the OCC, and other fcderal and state agencies and supervisors have taken to safeguard 

consumers from the risks products of this nature present to consumers. For example, based on a 

Department of Defense study of predatory lending atTecting service members, their dependents, 

and military readiness, Congress (in the John Warner National Defense Authorization Act, P.L. 

109-364) restricted the costs and terms of certain abusive credit products alTered to members of 

the military and their dependents. It is unclear whether or how H.R. 6139's prohibitions on 

establishing usury caps or limits would affect this important protection provided to our nations' 

service members. 

2 See http://w\V\v.occ.gov!staticienforcement-actions!ea2003-1.pdf. 

5 
120 


76120.063

By requiring the OCC to charter NCCCs that present business plans that meet certain 

chartering criteria, and to approve products or services tbat sucb companics would offer unless 

the acc makes an express determination that such product or service will significantly harm the 

interests of underserved consumers or small businesses, n.R. 6139 would undermine steps the 

acc has taken over the past ten ycars to address significant consumer protection issucs, 

BSA/AML, and safety and soundness risks that many of these products pose. For example, H.R. 

6139 directs the OCC to encourage and facilitate joint ventures between NCCCs and third-party 

service providers and vendors to help facilitate innovative products and services. Through our 

supervisory and examination processes, we have found that financial institutions that have 

partnered with third-party providers to originate or deliver sueh products and services can 

encounter serious risks because of the failure of vendors to adequately eontrol and manage their 

business operations. The Comptroller has recently singled out third-patty oversight as a 

significant contributor to the operational risks facing financial institutions. 

More generally, through a combination of guidanee and strong enforcement actions, the 

acc has aeted to severely limit payday lending, RALs, and similar activity within the 

institutions we regulate. The ace has also taken steps to deter and prevent third-party finns 

from promoting and peddling such products by relying upon the use of a national bank charter 

through a business arrangement with a national bank or federal savings association. 

Specifically, the oec was the first federal banking agency to issue comprehensive antipredatory lending standards. In 2000, we issued advisories on payday loans, title loans, and 

abusive lending practices designed to prevent national hanks and their subsidiaries from 

engaging in lending practices that were unfair and deceptive] Between 2001 and 2003, the oee 

l See "AI., 2000-T' (http://www.occ.gov/statklncws-issuances/memos-advisory-letters/2000/advisory-letter-2000-

7.pdf), "AL 2000-1 0" (htlp:llwww.occ.gov/static/ncws-issuallccslmemos-advisory-Ietters/2000/advisory-letter6 
121 


76120.064

also took decisive enforcement actions against a varicty of banks and atIiliated service providers 

(i.e., Cash America, Advance America, ACE, Dollar Financial) for unsafe and unsound lending 

practices and violations oflaws, including violations of the Federal Trade Commissioll Act and 

In 2010, the oce acted to severely curtail the sale and marketing of RALs among 

national banks because 0 f the consumer protection and safety and soundness risks arising from 

the product's unique rcpayment and cost structures, and because of the banks' reliance on thirdparty tax return preparers to offer themS We are concerned that !-I.R. 6139 would penn it-and 

encourage-insured depository institutions to re-establish such atIiliatiolls through NCCCs that 

the OCC would be charged with approving. 

In addition to consumer compliance and protection issues, we believe the narrowly 

focused charters and the types of products NCCCs would offer raise serious potential safety and 

soundness concerns. H.R. 6139 would allow and encourage NCCCs not aft1Jiated with insured 

depository institutions to form aft1liations with third-party vendors. As previously noted, our 

experience suggests that such vendors often lack the requisite systems and procedures to comply 

with the myriad of BSA/AML and other regulations and risk management practices that are 

essential to the safe and sound conduct of these activities. We believe NCCCs would face 

significant BSAIAML exposure resulting from their dependence on products with remote deposit 

capture characteristics and lack direct cllstomer contact and traditional long-term customer 

relationships, such as prepaid cards, internet-ofTered products and money transfer services. 

2000-J O.pdf), and "AL 2000-11" (hltp:l/www.occ.govlstaticlnews-issuanccs/memos-advisory-leltersI2000Iadvisoryletter-2000-ll.pdf). 

4 See enforcement action 2003-1 against First National Bank in Brookings (http://www.occ.gov/staticJenforcementactions!ea2003-J .pd!), enforcement action 2003-2 against Peoples National Bank 

(http://www.occ.govlstaticlenforcement-actionslca2003-2.pdf), enforcement action 2002-93 against Goleta National 

Bank (http://v'iww .occ.gov!static/enforcement-actions!ea20q±-93.~Q.9D, and enforcement action 200 I-I 04 against 

Eagle National Bank (http://www.occ.gov/staticlenforcement-actions/ea200 I-I 04.pdf). 

5 See "oee 201 0-1" (http://www.occ.gov/news-issuancesibulletins/2010ibulietin-2010-7.htmIJ. 

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Information and transparency is vital to the proper management of BSA/ AML risk. Our 

supervisory experience also indicates that companies with limited business focus and product 

lines face significant concentration risks that can threaten their viability if underlying business 

conditions in their market area deteriorate or change (for example, the closing of a nearby 

military base). These risks are magnified for linns that lack a stable funding base and are 

dependent on non-dcposit wholesale funding. We believe that NCCCs created under H.R. 6139 

would be highly susceptible to these risks. 

We are also concerned that H.R. 6139 could blur authorities and responsibilities for the 

OCC and the CFPB and create additional contusion for consumers. For example, companies 

chartered under the bill would be required to provide to their customers any financial education 

intlll1nation that is adopted by the OCe. While we endorse etlorts to improve financial literacy, 

this is an area where Congress has given the CFPB broad authority. Similarly, II.R. 6139 would 

exempt from the requirements of TILA--which the CFPB implements-loans with terms of one 

year or less ifthe creditor has provided the borrower with a clear and conspicuous statement in 

the loan agreement of the cost of the loan expressed as a total dollar amount and as a percentage 

of the principal amount of the loan. This exemption would apply not only to NCCCs but also to 

any other creditor making these loans. We are concerned that this provision would exempt shortterm loans from important TILA protections and disclosures that currently apply, such as the 

APR and finance charge; would substitute a different disclosure standard that would not allow 

consumers to compare costs with credit products subjecllo TILA; and would thereby mask the 

potentially high APRs of the categories of short-term loans to be offered by NCCCs, such as 

payday loans and RALs. A recent study released by the Pew Chmtitablc Trusts Small Dollar 

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Research Project noted the difficulty consumers may have in trying to compare a product where 

the rate is quoted as a simple interest rate with one where the rate is expressed as APR. 6 

Finally, we are concerned that the standard H.R. 6139 imposes of "significant harm to the 

interests of under served consumers or small businesses" in order for the OCC to deny a proposed 

product or service would be difficult to implement, and could face challenges. Assessing 

potential hann or benefit to an individual or even class of consumer would bc very fact specific, 

take a significant amount of time, and could vary over time depending on a consumer's situation 

and available product alternatives. 

As previously noted, a key motivation for establishing a national charter for credit 

corporations appears to be the benefits that uniform regulations could provide to such finns. We 

believe the creation of the CFPB already provides an avenue f(lr achieving this objective without 

creating a new class offederally chartered financial institutions. Congress has given the CFPB 

regulatory authority to adopt standards related to consumer products and services offered in the 

marketplace, without regard to whether they arc offered by banks, nonbanks, or state- or 

federally supervised institutions. Further, tbe CFPB has general authority to supervise and 

regulate nonbank lenders, including payday lenders and "large nonbank participants" in 

consumer credit and services, and will be conducting examinations of such companies. The 

sponsors ofH.R. 6139 may want to consider discussing with the CFPB how its existing 

regulatory and supervisory authority can be used to achieve the goals of the bill. 

We also note that Congress has previously assigned to the Treasury Department the task 

of developing programs for small-dollar loans that would serve as alternatives to costlier smalldollar loans, and Section 1025 of the Dodd-Frank Act authorizes the Secretary of the Treasury to 

6 "Payday Lending in America: Who Borrows, Where They Borrow, and Why," the Pew Charitable Trusts SmallDollar Research Project. p. 17. 

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establish demonstration programs for this purpose. The OCC believes such programs would 

provide a valuable mechanism for supervisors and industry participants to collaborate on 

innovative approaches (0 address the needs of underserved consumers and consumers who may 

have blemished or limited credit history and thus limited access to traditional credit products. 

Conclusion 

In summary. (he OCC is concerned that HIt 6139 could have a number of unintended 

and undesirable effects for the population that it is intended to benefit. In particular. fLR. 6139 

raises serious consumer protection. compliance, and safety and soundness issues by creating a 

new federal charter for companies concentrating on products and services most prone to abuse 

and that are most often targeted to minority populations, low-income neighborhoods. and 

communities with high concentrations of our military service members. These are products and 

services that the OCC has largely extinguished from the national banking system. and we would 

not support, license, nor chmter an institution concentrating in these services today. 

Furthermore, where these services are offered. state officials and the CFPB have adequate 

authority to regulate these products and services and the companies that provide them. The OCC 

shares the authors' goal of providing financial services to underserved communities and 

unbanked populations, and looks forward to working with members of the Subcommittee to 

achieve that goal. 

to 
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STATEMENT BY 

MARY JACKSON 

BEFORE THE 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND 

CONSUMER CREDIT 

Washington, DC 

July 24, 2012 

Thank you for this opportunity to submit my written statement as part 

of the record. I am pleased that the subcommittee is holding this hearing to 

consider legislation that would allow consumers more credit options. 

As a tenured employee of Cash America International (NYSE:CSH), 

I've spent more than 20 years advocating for consumers who deserve an array 

of financial options. That is why I am here to express my support ofH.R. 

6139, the Consumer Credit Access, Innovation and Modernization Act, 

relating to a federal non-bank charter. This legislation will provide consumers 

with access to new, innovative financial products that are generally 

unavailable to them at traditional institutions such as banks and credit 

unions. 

Cash America is an innovative, 28-year old company that offers 

specialty financial services in the United States and abroad. As a heavily 

regulated organization, we operate in 39 states and hold more than 4,100 

licenses to offer unsecured and secured, non-recourse products, which include 

pawn loans, installment loans, lines of credit, cash advance loans, auto equity 

loans, gold buying, check cashing, money orders/transfers, bill pay and 

prepaid debit cards. These services offer viable options for hard-working 
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Americans who need and want access to credit. We desire to offer more 

options to consumers, but unfortunately, we are restricted. There is a 

disconnect between the speed of product innovation by the private sector and 

the outdated state laws currently set up to govern those products. 

The demand for affordable credit is significant and growing, while 

available credit alternatives are shrinking. A federal non-bank charter would 

take the industry from varying laws in 50 states to one overriding solution. 

The state-by-state model is utterly ineffective. The patchwork of credit 

products currently available by state means we can't offer the same choices to 

consumers with identical financial needs because they are separated by 

nothing more than a state line. 

Under the charter, American consumers living in different states would 

have access to the same products. The charter would also allow consumers 

longer loan terms of 60, 90 even 120 days to one year to repay their loans, 

which can be designed to pay down the principal balance over the term of the 

loan. This is important considering that a recent study by the National Bureau 

of Economic Research revealed that almost half of American consumers can't 

even come up with $2,000 in 30 days to meet an emergency. The financial 

products gap is real and getting wider. Options are dwindling and there's 

nothing there to replace them. We have to begin to articulate a nationwide 

approach and put a plan into action. That's what we believe is outlined in the 

Consumer Credit Access, Innovation and Modernization Act. 

In closing, let's not marginalize non-bank lenders into a category of 

financial services that can be deemed as "alternative." We're becoming more 

mainstream and we need avenues to continue serving consumers with more 

options. We encourage you to support a non-bank charter- not just because 

we're asking, but because of customers like Elizabeth from Ohio who wrote us 

saying: "For people who can't get bank loalls, small loans are the only option. '.' 

As an advocate for consumers, I urge the committee to consider H.R. 

6139. The legislation would provide a single solution to meet the needs of all 

Americans and ensure sustainable access to credit for them for years to come. 
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TESTIMONY Of 

JOHN MUNN 

DIRECTOR Of BANKING AND FINANCE 

NEBRASKA DEPARTMENT OF BANKING AND FINANCE 

On behalf of the 

CONFERENCE OF STATE BANK SUPERVISORS 

On 

"EXAMINING CONSUMER CREDIT ACCESS CONCERNS, NEW PRODUCTS AND FEDERAL 

REGULATIONS" 

Before the 

FINANCIAL INSTITUTIONS AND CONSUMER CREDIT SUBCOMMITTEE 

COMMITTEE ON FINANCIAL SERVICES 

UNITED STATES HOUSE OF REPRESENTATIVES 

Tuesday, July 24, 2012, 10:00 a,m. 

Room 2128 Rayburn House Office Building 
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INTRODUCTION 

Good morning, Chairman Capito, Ranking Member Maloney, and distinguished Members of the 

Subcommittee. My name is John Munn, and I serve as the Director ofthe Nebraska Department of 

Banking and Finance. 

It is my pleasure to testify before you today on behalf of CSBS. CSBS is the nationwide 

organization of banking regulators n'om all 50 states, the District of Columbia, Guam, Puerto Rico, and 

the U.S. Virgin Islands. State banking regulators supervise over 5,400 state-chartered banks. Further, 

most state banking departments also regulate a variety of non-bank financial services providers, including 

payday lenders, check cashers, money services businesses, and mortgage lenders. In my state of 

Nebraska, my department is responsible for regulating state-chartered banks and trust companies, statcchartered credit unions and savings and loans, mortgage lenders, consumer lenders, sale of check and 

funds transmissions, and delayed deposit services and payday lenders. 

I thank you, Chairnlan Capito, and the Members of the Subcommittee, for holding this hearing on 

consumer credit and proposals to federalize the provision of short-term consumer credit and related nonbank t1nancial services. State regulators playa central role in overseeing the non-depository consumer 

credit industries, and we appreciate the oppOltunity to be part of this important discussion. 

In my testimony, I will provide our views on H.R. 1909 and 1 LR. 6139, both of which propose to 

create a federal charter for consumer credit companies, and 1 will provide an overview of state 

supervision of non-depository, non-mortgage t1nancial services providers. 

STATE REGULATORS' CONCERNS ABOUT A FEDERAL CONSUMER FINANCE 

COMPANY CHARTER 

r applaud the efforts of Representatives Baca, Luetkemeyer, and their colleagues to make 

financial services and products available for unbanked and underbanked consumers. While we recognize 

that providing under-banked and unbanked individuals with access to financial services and products is an 

important objective, we have significant concerns about H.R. 1909 and H.R. 6139 because both bills: 

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Establish an option for a federal business charter without meeting the necessarily high thresholds 

that Congress has traditionally required for receiving such a benefit; 

Circumvent the stutes' ability to establish and enforce laws govcrning the provision of financial 

services to their citizens; and 

Undermine the carefully structured state-federal balance in financial services regulation. 

Federal Charters Should Only Be Granted in Very Limited Circulllstances 

Historically, Congress has created federal charters only in highly limited circumstances. This 

rellects the delicate balance assigned to the Congress by the Constitution: Congress has the power to 

regulate Commcrce among the states, but powers not delegated to Congress by the Constitution are 

reserved to thc states. 

In this context, providing the federal government the authority to issue charters with a benefit 

beyond mere incorporation is the result of a Congressional determination that federal government 

involvement was needed to meet compelling public purposes. For instance, the National Currency Act, 

subsequently renamcd the National Banking Act, addressed the need for a single national currency to 

finance the Civil War after the Legal Tender Act failed to garner the public's confidence. To do so, 

nationally chartered banks were permitted to issue notes backed by the federal government. Similarly, 

federal thrift charters permitted savings and loans access to the Federal Home Loan Bank System, which 

provided a government-backed mechanism to address a nationwide lack oflong term credit availability 

for housing during the Great Depression. 

In both instances, Congress developed a program with specific govemment-backed products to 

address a particularized federal interest, a construct thai is absent in H.R. 1909 and H.R. 6139. In 

contrast to these situations, the vast majority of industries and businesses -- large and small in the 

United States thrives and mects important consumer needs very succcssfully without a federal charter. 

State regulators share Congress's concerns regarding under banked consumers and pledge to 

work with Congress to address this important social and economic problem. llowcver, H.R. 1909 and 

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H.R. 6139 falls short of the proper state-federal construct required to properly address this issue and do 

not meet the highly particularized circumstances where a federal charter is the appropriate policy solution. 

H.R. 1909 and H.R. 6139 Circumvent Stale Authori!y 

By creating a federal charter and preempting state licensing and consumer protection laws, H.R. 

1909 and H.R. 6139 undermine states' authority to license and regulate a variety of non-bank financial 

services providers and eliminate the states' ability to protect their citizens and affect local credit markets. 

The current legal structures governing the types of businesses covered by the two bills have longstanding f(mndations in state law. The citizens of the individual states, through their legislatures and 

other elected officials, have determined thc conlours ofthe financial services companies operating within 

their borders, the state regulatory regimes overseeing such businesses, and the consumer protection 

standards such companies must meet. The state laws that apply to payday lenders, check cashers, and the 

other non-bank entities in this legislation rel1ect policy decisions by the states about the benetits and costs 

of such products. These state laws are designed to limit the pitlalls of such financial products, while 

ensuring these products arc available when and where needed. 

In my home state of Nebraska, much of the state legal stmeture around deposit services and 

payday lenders was adopted in the early 1990's. At that time. our legislature made the decision to take 

this business out of realm of unregulated back alleys and loan sharks and to put it into licensed 

storefronts; in fact, the industry sought this move as a way of keeping bad actors out. The result of this 

action by state policy makers was that consumers would still be able to access these services and 

products, but with a greater level of consumer protection and greater accountability on the part of 

providers. In Nebraska, payday loans are limited to no more than $500, cannot exceed 34 days in 

loan term, cannot have fees in excess of $15 per $100, and bOITowers are limited to no more than 

two outstanding loans at a time, with no rollovers. For calendar year 2010, Nebraska had 

approximately 115 licensed payday lenders; these companies, in the aggregate, reported total 

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operating income exceeding $35 million, and net income of$7.5 million -- a 20% net return after 

taxes.] 

The provisions of H.R. 6139 supporting and encouraging the use of the internet in this 

type oflending, when combined with the bi II's elim ination of state jurisdiction, raise particular 

concerns as it seems aimed at exchanging existing state oversight and consumer protections for 

enhanced business opportunities. Currently, some institutions operating online consider 

themselves beyond state lines and therefore not subject to local consumer protections. But the 

transactions and the potential for consumer harm remain very locally real. A long-distance loan 

without local protections is not good for the consumer. States vary in their approach to Internet 

lending. In my home state of Nebraska, internet payday transactions are not allowed. This 

reflects the response of policy makers in our state to the lack of accountability as to the party on 

the other side ofthe transaction and concerns about consumer protection, data security and 

privacy. 

However, my colleagues in other states approve and license various non-depositories 

conducting both online and face-to-face transactions. Regardless of how the business is 

conducted, if it is state-licensed, the entity is subject to state consumer protection laws and state 

regulatory examinations. Our concern with H.R. 1909 and H.R. 6139, in particular, is that the 

bills encourage companies to offer financial products with no local accountability and 

encourages mass distribution through the Internet. My testimony discusses below the state-federal 

collaboration that Dodd-Frank established in creating the Consumer Financial Protection Bureau. The use 

of the Internet in delivering consumer financial products is one area where we see particular benefit in 

having a federal partner to address national iss lies in a manner that complements state oversight. In 

1 Nebraska Department of Banking and Fin:lIlce, 2011 Annual R\illQrt at 39. 

http://www.ndbl.ne.gov/reporls!2011-Annual-Report.pdf 

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contrast, H.R. 1909 and H.R. 6139 seek to provide a blanket endorsement oflntemet-based lending while 

avoiding comprehensive regulation. 

We urge Congress to consider carefully the implications of these bills. H.R. 1909 and 

H.R. 6139 would replace these locally-made decisions with a federal regime. Congress should 

not supplant state sovereignty lightly. The desire to help underserved consumers gain access to 

products and services should not be used as a cover to allow certain providers the opportunity to 

avoid eompliance with laws that they believe run counter to their own profitability. With 

virtually no product limits included in the bill, it is hard to envision selt~imposed provider controls 

creating a more affordable environment for the undcrserved. 

Congress and the COUlts have long taken the view that federal preemption of state law is the 

exception not the rule and that preemption is only warranted in very limited situations. Understanding 

local markets and business practices requires a strong presence in the community. Given the inherently 

local nature of single-transaction industries, it is managerially impossible to monitor safety and soundness 

and consumer compliance across the 50 States, District of Columbia, Puerto Rico, Guam, Northern 

Mariana Islands. and Virgin Islands. While consumer credit services expand to the Internet. the core 

transaction still occurs at a local level that requires local oversight. The Constitution established a 

federalist system to balance local and national priorities. and only a balanced state-federal regulatory 

regime can appropriately address a consumer's safety and access to credit. 

Established and Productive State-Federal RCl!.ulatory Partnership~ 

The state law structures and processes governing financial services providers are complemented 

by federal partners. In banking, state regulators have well-established relationships with the federal 

banking agencies. In the non-bank arena, state regulators have worked with federal agencies including 

the Financial Crimes Enforcement Network ("FinCEN"), the Depattment of Housing and Urban 

Development, and, most recently. the CFPB. These state-federal partnerships leverage the benefits and 

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strengths of each side of the relationship. The states bring to this partnership an on-the-ground 

perspective that comes from heing in the communities that their regulated entities serve. States serve as 

the front line licensing and regulatory authority, ensuring that companies wishing to offer such services 

meet certain minimum requirements and comply with state and federal laws. The federal component 

hrings to this state-federal partnership a national perspective that informs and reinforces, without 

supplanting, state authority. 

This structure did not come ahout by accident. Federalism has always heen the organizing 

principle of the U.S. government. Our nation's founders sought to create a system of self-mle that 

disttihuted power across the broadest possible base, with checks and balances that would prevent any 

individual person or government entity from exercising too much power. 

Financial supervision has evolved in a way that retlects this federalist system of representation 

and laws. Rounds of financial system restructuring have granted new powers to the federal government 

and created new federal regulatory structures, but Congress has always been careful to respect the states' 

authority to issue charters and business licenses and to regulate financial services providers. During each 

round of major reform over the past 150 years, Congress has recognized that the states' authority to 

charter and supervise financial services providers is not merely tradition, but prudent necessity. 

The participation of both state and federal agencies in financial services regulation has heen a 

source of strength rather than weakness for the system, as it draws on two levels of resources and 

expertise. Because states are physic.ally closer to the financial services providers they supervise and have 

more in-depth local knowledge of the areas these providers serve, state regulators can often identify 

potentially trouhlesome trends or practices before these issues huhble up to the federal level. If problems 

hecome systemic, the federal government is best poised to act in a manner that protects the economy on a 

national level. 

A perfect case study of successful federalist supervision is the development, launch, and 

widespread implementation of the Nationwide Mortgage Licensing System and Registry ("NMLS," or the 

"System"). What initially started as a grass-roots effort to protect consumers in the absence offederal 

6 
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legislation or regulation evolved in a state-federal regulatory framework conceived and initiated by the 

states, implemented by Congress, and adopted by federal regulators. 

Approximately 10 years ago, state regulators recognized the need to enhance supervision of the 

residential mortgage industry. To do so, state regulators, through CSBS and the American Association of 

Residential Mortgage Regulators (AARMR), developed and launched NMLS to establish a state-based, 

natiollwide regulatory infrastructure that would license and track mortgage companies and brokers and 

allow for coordinated state supervision and a central repository for enforcement actions. 

As the U.S. economy began 10 jalter, Congress recognized the need for major mortgage market 

reforms, and passed the Housing and Economic Recovery Act in June 2008 to try to stabilize the market. 

Under the leadership of Chainnan Bachus and other members ofthis Committee, that law included the 

Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the "SAFE Act"), which requires all 

residential mortgage loan originators be either licensed or registered through NMLS. The SAFE Act also 

established a framework clarifying state and federal roles and a mechanism for state and federal 

coordination and infoffilation sharing. 

Cone ems about a "patchwork quilt" of state laws have been proven to be completely inaccurate. 

Within one year of passage of the SAFE Act, all SO states had enacted laws to implement the mandates of 

the SAFE Act to build upon the existing state efforts to form a uniform and seamless system of mortgage 

supervision. The states embrace cooperative efforts, interstate agreements, and model standards to 

provide consistent supervision. But we also must maintain Ollr sovereignty in order to respond quickly 

and decisively to protect consumers in our states when we identity concerns in our own jurisdictions. 

State-federal collaboration in banking laws is well-established. The Financial Institutions 

Regulatory and Interest Rate Control Act of 1978 created the Federal Financial Institutions Examination 

Council (the "FFIEC") with state participation. Congress strengthened this participation in 2006 by 

adding a state regulator as a voting member of the FFIEC. 

Most recently, the Dodd-Frank Act reaffirmed the importance of the dual-banking system and a 

federalist system of tlnancial supervision. Just as in previous refi:mn efforts, the dual-banking system 

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emerged from the debate intact, thereby preserving a system of coordinated state-federal financial 

oversight. Whether it is the inclusion of state financial regulators in the Financial Stability Oversight 

Council, or various other provisions calling OIl federal regulators to coordinate andlor consult with state 

regulators, the current financial regulatory fabric includes state regulators as a critical component 

Members of Congress on both sides of the aisle and in both chambers made a conscious decision 

to leave in place existing state regulatory regimes across nUmerous areas including banking and non-bank 

financial services providers, such as those that would be affected by H.R. 1909 and H.R. 6139. Both bills 

run directly contrary to the goal of state-federal regulatory collaboration, as the effect ofthe bill will be to 

fundamentally undo the existing state-federal partnership, federalizing industries that have been largely 

within the jurisdiction of state regulators. 

H.R. 1909 and H.R. 6139 Distort the Market 

State regulators have a deep appreciation for the importance of diversity in the financial services 

industry. Our members' granular and practical perspectives on the financial credit markets in their states 

have led to a view that one size does not fit all when it comes to delivering financial services. States 

regulate a very diverse set of entities, ranging from $ J 00 billion-plus banb serving national markets to 

locally-based small businesses ofTering consumer financial services. Both H.R. 1909 and H.R. 6139 

could undem1ine this diversity by stratifying the industry and creating a regulatory regime that serves the 

interest of the larger participants in this market to the disadvantage of the smaller companies. Neither 

consumers nor the broader financial market arc served by policies that bifurcate industries and that tilt the 

marketplace in favor of only certain types or sizes of institutions. 

Additionally, the bills' provisions about business relationships between national consumer eredit 

companies and depository institutions. when combined with the bill's preemption provisions, appear to be 

an effort to undennine Dodd-frank's provisions which deny bank affiliates and operating subsidiaries 

access to national bank preemption. The effect ofthis would be to create yet another inconsistency in the 

marketplace. 

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Additional Concerns 

I would like to mention a fcw additional concerns that CSBS has with the proposals that we have 

seen. 

Inconsistent Consumer Disclosures, Under one legislative proposal, national consumer credit 

companies would not be required to disclose the ,mnual percentage rate (APR) to consumers, The 

purpose ofthe APR is to provide consumers with a tool for comparing loans between competing lenders, 

With RR. 1909 and H.R. 6139, consumers will be faced with (wo types nfnon-comparable disclosures: 

those provided by state-licensed lenders with the APR, and those provided by OCC-chartered lenders 

with no APR. 

Inappropriate Support (or Business Relationships. H.R. 6139 directs the OCC to encourage 

business relationships between national consumer credit companies and depository institutions 

effectively telling a regulator that is should encourage business relationships between its regulated 

entities. Regulators simply do not -- and should not be required to support such relationships, This is 

an inappropriate role for regulators and skews the marketplace in favor of one subset of institutions. 

THE STATE OF STATE SUPERVISION 

Supervisory Techniques Utilized by State Regulators of Non-Depositories 

A key ingredient of state supervisory efforts is the licensing of non-depository providers. States 

have regulated non-depositories for decades and virtually all states require licensing of most nondepositories. The licensing of a non-depository typically requires the submission of personal background 

information on directors or officers, financial statements, surety bonds, and company policies. Once 

licensed, supervision transfers to examination oversight where state regulators trust, but verify, that the 

licensee is in compliance with safety and soundness and consumer protection requirements. 

Today's state supervisory processes and information exchanges are largely formalized through 

regulatory associations and multi-state information sharing agreements. The associations include CSBS, 

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AARMR, the National Association of Consumer Credit Administrators (NACCA), the Money 

Transmitter Regulators Association (MTRA), and the North American Collection Agency Regulatory 

Association (NACARA). Non-depository supervision is rapidly coalescing around the NMLS as a 

mechanism for a\l types of non-depository licenses, and in the coming months and years, the System will 

act as a functional supervision environment with the ability to manage examination case loads, process 

conSumer complaints, and archive examination records. For licensees, the NMLS has brought efficiency 

as it has promoted greater uniformity and consistency across the states. 

Tn addition to these organizational connections, state regulators have joined forces through 

information and resource sharing agreements including the Nationwide Cooperative Agreement for 

Mortgage Supervision, the Money Transmitter Regulators Cooperative Agreement, the Nationwide 

Cooperative Agreement for MSB Supervision, the Information Sharing and Common Interest Agreement 

Between the State Attorncys General and the State Financial Regulators, the CFPB-CSBS Memorandum 

of Understanding, and the MOU between the U.S. Department of the Treasury, Financial Crimes 

Enforcement Network, and the state agencies. These agreements facilitate the legal and timely exchange 

of supervisory information and foster a cooperative environment of regulatory constructs focused on 

efficiency and eiJcctiveness in state supervision. 

Information sharing among regulators is central to effective and comprehensive oversight. 

would also like to note that CSBS supports H.R. 6125, Congressmen Renacei's and Perlmutter's recentlyintroduced legislation to ensure that information shared with certain state and federal regulators retains 

confidentiality and privilege as it is shared with and among those regulators. 

Currently in process is a new initiative to bring together the regulators of non-depository 

providers that arc not already joined through a cooperative agreement. This includes check cas hers. 

payday lenders, consumer finance companies, debt management companies, collection companies and 

any others identilied as benefitting trom a multi-state coalition. This agreement will be modeled upon the 

states' prior successes in coordinated supervision. 

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With or without multi-state coordination, states have long utilized our proximity to the entities we 

supervise to identify emerging trends and take action when necessary, Because of our close proximity to 

those entities we regulate and the local nature of most non-depository services, state regulators arc most 

often best positioned to identil'y emerging threats and are able to move quickly in response, For instance. 

in 2010 alone, state regulators took approximately 9,500 actions against non-depository financial service 

providers,' And because states are closest to local and regional economics, they arc best suited to 

dctennine consumer needs and business viability. 

The majority of states conduct periodic on-site examinations of non-depositories. These exams 

are generally on an 18- to 24-month cycle and are based on risk assessments performed by regulators. 

State non-depository examination standards and objectives often share certain similarities with bank 

examinations, including a review of financial strength, operational effectiveness, asset quality, transaction 

volume, record keeping and reporting requirements, and capital adequacy, as well as Bank Secrecy Act 

and Anti-Money Laundering (AML) compliance, Non-depository exams also cover areas not typically 

found in bank examinations, including licensing requirements and compliance with state and federal 

consumer protection law. 

In addition to regulation and supervision of business practices. requirements on the front-end of 

consumer transactions are used to increase transparency for consumers, Through disclosure requirements 

consumers are made aware of the service and product being provided. It is important to stress that 

consumers conducting transactions with stale-authorized providers are afforded both federal and slate 

consumer protections, and that many state regulators are charged with not only examining and enforcing 

state requirements, but aU federal requirements, as welL This authority is unique to the state system of 

supervision and is not duplicated on the federal side. Despite the fact that most COnsumer protections 

exist within state law and regulation, no federal regulatory agency has the authority or responsibility to 

examine or enforce under these statutes, 

2 Source: CSBS 2010 non-depository survey, Not ali states responded to the survey, 

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It may also be tempting for some to think that state supervision means inferior oversight. State 

non-depository supervision agencies employ approximately 700 field examiners dedicated to the 

examination of non-depositories. These compliance examiners perform on average more than 11.000 

examinations each year for check cashers. payday lenders and money transmitters. or approximately 950 

exam inations each month. 

However. contrary to the both bills' premise that state supervision is excessive and costly. state 

supervision is specifically calibrated to the business model being examined. State exams vary, but can 

include reviewing policies and procedures, interviewing management and employees, reviewing 

advertising, testing transaction files for consumer compliance, and reviewing the institution for safety and 

soundness concerns. In the case of payday lending. where the transaction is relatively homogenous and 

uniform in documentation and disclosure, state examiners are able to fulfill these review responsibilities 

with an average of only nve hours per examination. 

Likewise, this can be said for the burden of complying with various state restrictions placed on 

these financial products. Limitations on rates, fees, and numbers ofloans per consumer are easily 

understood and unchanging. A lender operating in Nebraska should have no more difficulty charging a 

$15 fee on a $100 loan than they would have in Connecticut charging a $17 fee on a $100 loan. Arguing 

that snch limitations create excessive compliance burden is rhetoric, not reality. 

Supervision of Multi-State Non-Depository Providers 

As the recent financial crisis evolved, state regulators recognized a need to create more 

coordinated supervision and more efficient channels of communication and infonnation sharing. To that 

end. in 2008 CSBS and AARMR established the Multi-State Mortgage Committee (the "MMC") to serve 

as the coordinating body for examination and enforcement supervision of multi-state mortgage entities 

(MMEs) by state mortgage regulators. This successful venture largely serves as the state supervisory 

model going forward with other non-depository areas. 

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The MMC is tasked with developing examination processes that will assist in protecting 

consumers from mortgage fraud; ensuring the safety and soundness of MMEs; supervising and examining 

in an integrated, Ilexible and risk-focused manner while minimizing regulatory burden and expense; and 

fostering consistency, coordination, and communication among state regulators. The MMC is made up of 

mortgage regulators from 10 states and represents all states' mortgage supervision interests under the 

Nationwide Cooperative Agreement for Mortgage Supervision, 

On the money transmitter side of state supervision, the MTRA formed the foundation for multistate efforts by executing the Money Transmitter Regulators Cooperative Agreement in 2002 and the 

MTRA Examination Protocol in 2010, which 46 states have signed. These documents set up the 

lramework the states use to coordinate money transmitter examinations and share information, 

minimizing regulatory burden on supervised entities and conserving regulatory resources. 

To continue to improve multi-state supervision, the states enhanced the scope and expanded the 

scale oftbe 2002 MTRA Cooperative Agreement and the 2010 MTRA Examination Protocol through the 

CSBS-MTRA Nationwide Cooperative Agreement for MSB Supervision and the Protocol for Performing 

Multi-State Examinations. The enhanced Agreement covers currency dealers or exchangers, traveler's 

checks, money orders, prepaid access, stored value, and money transmitters. It is designed to promote a 

framework of coordination and consistency while ensuring regulatory requirements are met and burden is 

reduced for industry. To do so, the Agreement and Protocol outline how states will work together to 

examine for consumer protection and safety and soundness requirements in an efficient manner for both 

the states and supervised entities, 

Through multi-state supervision agreements, state regulators actively work together to reduce 

regulatory burden and increase regulatory efficiency. Multi-state exams have a "lead state," which serves 

as a central point of contact. The lead state coordinates document and information requests and acts as a 

repository for documentation to help minimize duplicative document requests. As in the case of an exam 

conducted by a single state, multi-state exams focus on state and federal conslImer proteetion review, but 

13 
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also include analysis of the provider's financial condition, adherence to state and federal regulatory 

requirements, and compliance with the Bank Secrecy Act and anti-money laundering requirements, 

The various state regulatory associations play an active role in facilitating the multi-state 

supervision process. The ahility to pool resources and the resulting increase in consistency and 

coordination benetits both the slate banking departments and the regulated entities. States have 

recognized this through the work of the MMC and multi-state efforts in the MSB arena, as well as 

licensing through the NMLS. and we are confident this approach has the proper halance of efficiency and 

local regulation, as we bring multi-state supervision to all non-depositories. These efficiencies also carry 

through to coordination with federal regulators. The newly created crPB has a mandate to coordinate 

with state regulators in carrying out its responsibilities. Existing infrastructures such as the MMC and 

MMET help states engage and coordinate efficiently in supervisory efforts with the erPB. 

This coordinated supervisory effort is intended to minimize regulatory burden and expense for the 

industry, and foster consistency, coordination and communication among the state regulators. Rather than 

subject a multi-state provider and its management to multiple state requests fix information, the multistate process conducts these examinations under a single examiner in charge with a coordinated approach 

and request for information. a system long sought after by the larger non-depository providers. 

As mentioned above, the licensing of non-depository institutions is a key component of state 

supervision. Just this year, CSBS has expanded the use ofNMLS to accommodate state use of the 

System for non-mortgage, non-depository financial services industries, including consumer lending, 

money services businesses, and debt collection. Since April 2012, seven state agencies in Louisiana, 

Massachusetts. New Hampshire, Oklahoma, Hhode Island, Vermont, and Washington have begun 

transitioning non-mortgage license authorities onto NMLS. Six more agencies plan to expand their use of 

NMLS in 2012, and at least 12 additional agencies are expected to do in 2013, including my home state of 

Nebraska. 

As demonstrated by state participation in the mortgage and MSB Cooperative Agreements and a 

history of multi-state examinations and enforcement actions, and by ongoing collaborative efforts 

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between state and federal regulators, enhanced state coordination benefits regulators, the regulated 

entities, and consumers. Today's non-depositories are local in touch and national in scale, so state and 

federal regulators must work together to ensure effective and consistent supervision. The evolution of 

state regulation has shown that uniform intrastructure and federal policy can support - not supplantlocal governance and oversight. Combined state-federal regulatory regimes that include clear and 

appropriately calibrated incentives can promote consistent and comprehensive regulation without losing 

the benetits of states' "on the ground" perspective. 

CONCLUSION 

State financial regulators have done much to improve and enhance non-depository regulation to 

better protect the consumer and to strengthen the financial services market. Key to serving these goals is 

ensuring that the market is diverse and supports a variety of business models. As state regulators, we 

benefit from our proximity to the consumer transaction and to the communities served by the tinancial 

services providers. We hear first-hand about the regulatory burdens, and we see up close the 

consequences of bad actors. H.R. 1909 and H.R. 6139 take this perspective out of the picture for a broad 

range of transactions and financial services providers, to the detriment of the marketplace and of 

consumers. 

The challenge for polieymakers-and for the regulators who implement those policies-is to 

create a regulatory tramework that ensures industry professionalism, industry and regulatory 

accountability, and the proper alignment of incentives but that also avoids unnecessary regulatory 

inefficiencies and burdens. For state regulators, policies and approaches that encourage regulatory 

collaboration and coordination and that support regulatory innovation have been vital to striking this 

balance. 

Thank you for the opportunity to testify before you today. I look forward to responding to any 

questions or thoughts you may have. 

15 
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IIi\.!ERltAN5 

FQ{I FINANCIAL REfORM 

July 24, 2012 

The Honorable Carolyn B. Maloney 

U.S. House of Representatives 

2332 Rayburn House Office Building 

Washington, DC 20515-3214 

Dear Congresswoman Iv1aloney, 

Americans for Financial Reform 1629 K 5t NW, 10th HOOf, Washington, DC, 20006 

202.466.183~ 

We write to urge you to oppose H.R. 6139, the "National Consumer Credit Corporation Charter and Consumer 

Access Innovation Act of2012," and any similar legislation that rnay be introduced. 

The bill would: 

• Weaken consumer protection against fi.nancial abuses; 

• Undermine the authority of the CFPB over a huge swath of consumer financial products and services; and 

• Override state consumer protection laws through preemption. 

Among our many concerns with the legislation, ILR. 6139 would replace regulation of ray day lenders by the 

Consumer Financial Protection Bureau (CFPB), and state consumer protection regulators and Attorney's General, 

with greatly weakened consumer proteclion standards administered by the Office of the Comptroller of the Currency 

(OCC). Simply put, the bill constitutes a sharp downward departure from the consumer protection standards 

established by Dodd-Frank and sidelines state law enforcement. 

H.R. 6139 would allow national consumer credit corporations to bypass the oversight of the eFPB and state law 

enforcement agencies, and instead choose to be regulated by OCC. It would create a new federal charter under the 

ace for a broad range of consumer financial products and services now suhject to state supervision, which \evould 

include payday lenders, installment lenders, car-title lenders, prepaid-card issucrs~ check cashers, money-ordcr/wirctransfer/remittance providers, and morc. The OCC would become the primary regulator for these financial services 

companies and their products. 

This shift exposes consumers and the financial services marketplace to the very dangers that contributed to the 

economic crisis. The CFPB was created for the sole purpose of protecting consumers through oversight~ rulcmaking 

and enforcement of the rules for the very consumer financial products and services marketed and sold by the 

companies covered in this legislation. In contrast, the ace's primary mission is to protect financial companies, not 

protect consumers from deceptive or abusive lending practices. 

The bill would also allow for the OCC to override state-based consumer protections through preemption. By getting 

an oce charter, companies could evade state consumer protections. But the states' strong consumer protections 
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would not be replaced by equivalent or stronger federal law - insteao, the companies could take advantage of weaker 

standards used in the OCC's chartering and oversight process. This echoes the m0l1gagc crisis, where the ace's 

aggressive preemption of state protections against abusive home loans, \vithout putting into placc effective federal 

protections. contributed to the melt-down. H.R. 6139 and similar bills would repeat the same mistake [or other 

consumer financial services. 

H.R. 6139 also undermines more than 40 years of established and accepted consumer protections. The bill exempts 

lenders from core consumer protections, such as the federal requirement that they disclose the annual interest rate on 

loans. It also would wipe out longstanding state oversight and consumer protections against usurious loans and 

abusive practices. 

Less than six months after the Consumer Financial Protection Bureau has been fully operational with a director in 

place, H.R. 6139 would backtrack on Congress' promise to consumers. This bill offers nothing beneficial for 

consumers - and removing consumer finance companies from CFPB oversight will set a precedent for many other 

companies to also seek exclusion. 

We urge you to oppose H.R. 6139 and similar bills. and allow the CFPB and the states to consider appropriate rules 

of the road so that consumers can choose among products in a fair and transparent marketplace. 

Sincerely. 

Americans for Financial Refonn 

Arkansans Against Abusive Payday Lending 

California Reinvestment Coalition 

Center for Responsible Lending 

Consumer Action 

Consumer Federation of America 

Grass Roots Organizing 

Mission Asset Fund 

NAACP 

National People's Action 

NEDAP 

Southwest Center for Economic Integrity. Tucson, Arizona 

U.S. PIRG 

Woodstock Institute 

Following arc the partners of Americans for Financial Reform. 

All the organizations. support the overall principles rtf AFR and are workingfhr an accountable,}l.lir and Sf!cure 

financial ,~}wtem. Not all afthese organizations It'ork on all afthe i,~~\'ues covered b,v the coalition or have s(i,,'lJ1cd on to 

epel)' statement. 

A New Way Forward 

AFL-CIO 

AFSCME 

Alliance For Justice 

Americans for Democratic Action, inc 
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76120.088

American Income Life Insurance 

Americans United for Change 

Campaign for America's Future 

Campaign Money 

Center for Digital Democracy 

Center for Economic and Policy Research 

Center for Economic Progress 

Center for Media and Democracy 

Center for Responsible Lending 

Center for Justice and Democracy 

Center of Concem 

Change to Win 

Clean Yield Asset Management 

Coastal Enterprises Inc_ 

Color of Change 

Common Cause 

Communications Workers of America 

Community Development Transportation Lending Services 

Consumer Action 

Consumer Association Council 

Consumers for Auto Safety and Reliability 

Consumer Federation of America 

Consumer Watchdog 

Consumers Union 

Corporation for Enterprise Development 

CREDO Mobile 

CTW Investment Group 

Demos 

Economic Policy Institute 

Essential Action 

Greenlining Institute 

Good Business Intemational 

HNMA Funding Company 

Home Actions 

I-lousing Counseling Services 

Information Press 

Institute for Global Communications 

Institute for Policy Studies: Global Economy Project 

International Brot'herhood of Teamsters 

Institute of Women's Policy Research 

Krull & Company 

Laborers' Intemational Union of North America 

Lake Research Partners 

Lawyers' Committee for Civil Rights Under Law 

Move On 

NASCAT 

National Association of Consumer Advocates 

National Association of Neighborhoods 

National Community Reinvestment Coalition 

National Consumer Law Center (on behalf of its low-income clients) 

National Consumers League 

National Council of La Raze 
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76120.089

National Fair Housing Alliance 

National Federation of Community Development Credit Unions 

National Housing Trust 

National Housing Trust Community Development Fund 

National NeighborWorks Association 

National Nurses United 

National People's Action 

National Council of Women's Organizations 

Next Step 

OMB Watch 

OpenTheGovemment.org 

Opportunity Finance Network 

Patiners for the Common Good 

PICO National Network 

Progress Now Action 

Progressive States Network 

Poverty and Race Research Action Council 

Public Citizen 

Sargent Shriver Center on Poverty Law 

SEIU 

State Voices 

Taxpayer's f(x Common Sense 

The Association for Housing and Neighborhood Development 

The Fuel Savers Club 

The Leadership Conference on Civil and Human Rights 

The Seminal 

TlCAS 

U.S. Public Interest Research Group 

UNITE HERE 

United Food and Commercial Workers 

United States Student Association 

USAetion 

Veris Wealth Partners 

Western States Center 

We the People Now 

Woodstock Institute 

World Privacy Forum 

UNET 

Union Plus 

Unitarian Universalist for a Just Economic Community 

List of State and Local Signers 

AlaskaPIRG 

Arizona PIRG 

Arizona Advocacy Network 

Arizonans For Responsible Lending 

Association for Neighborhood and Housing Development NY 

Audubon Partnership for Economic Development LDC. New Yark NY 

BAC Funding Consortium Inc .• Miami FL 

Beech Capital Venture Corporation. Philadelphia PA 
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76120.090

California PIRG 

California Reinvestment Coalition 

Century Housing Corporation, Culver City CA 

CHANGER NY 

Chautauqua Home Rehabilitation and Improvement Corporation (NY) 

Chicago Community Loan Fund, Chicago IL 

Chicago Community Ventures, Chicago IL 

Chicago Consumer Coalition 

Citizen Potawatomi CDC, Shawnee OK 

Colorado PIRG 

Coalition on Homeless Housing in Ohio 

Community Capital Fund, Bridgeport CT 

Community Capital of Maryland , Baltimore MD 

Community Developmcnt Financial Institution of the Tohono O'odham Nalion, Sells AZ 

Community Redevelopment Loan and Investment Fund, Atlanta GA 

Community Reinvestment Association of North Carolina 

Community Resource Group, Fayetteville A 

Connecticut PIRG 

Consumer Assistance Council 

Cooper Square Committee (NYC) 

Cooperative Fund of New England, Wilmington NC 

Corporacion de Desarrollo Economico de Ceiba, Ceiba PR 

Delta Foundation, Inc., Greenville MS 

Economic Opportunity Fund (EOF). Philadelphia PA 

Empire Justice Center NY 

Empowering and Strengthening Ohio's People (ESOP), Cleveland OH 

Enterprises, Inc., Berea KY 

Fair Housing Contact Service OH 

Federation of Appalachian Housing 

Fitness and Praise Youth Development, Inc., Baton Rouge LA 

Florida Consumer Action Network 

Florida PIRG 

Funding Partners for Housing Solutions, Ft. Collins CO 

Georgia PIRG 

Grow Iowa Foundation. Greenfield IA 

Homewise, Inc., Santa Fe NM 

Idaho Nevada CDF!, Pocatello ID 

Idaho Chapter. National Association of Social Workers 

Illinois PIRG 

Impact Capital, Seattle W A 

Indiana PIRG 

Iowa PIRG 

Iowa Citizens for Community Improvement 

JobSlart Chautauqua, Inc., Mayville NY 

La Casa Federal Credit Union, Newark NJ 

Low Income Investment Fund, San Francisco CA 

Long Island Housing Services NY 

MaineStream Finance, Bangor ME 

Maryland PIRG 

Massachusetts Consumers' Coalition 

MASSPIRG 

Massachusetts Fair Housing Center 
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Michigan PIRG 

Midland Community Development Corporation, Midland TX 

Midwest Minnesota Community Development Corporation, Detroit Lakes MN 

Mile High Community Loan Fund, Denver CO 

Missouri PIRG 

Mortgage Recovery Service Center of L.A, 

Montana Community Development Corporation, Missoula MT 

Montana PIRG 

Neighborhood Economic Development Advocacy Project 

New Hampshire PIRG 

New Jersey Community Capital, Trenton NJ 

New Jersey Citizen Action 

New Jersey PIRG 

New Mexico PIRG 

New York PIRG 

New York City Aids Housing Network 

New Yorkers for Responsible Lending 

NOAH Community Development Fund, Inc., Boston MA 

Nonprofit Finance Fund. New York NY 

Nonprofits Assistance Fund, Minneapolis M 

North Carolina PIRG 

Northside Community Development Fund, Pittsburgh PA 

Ohio Capital Corporation for Housing, Columbus OIl 

Ohio PIRG 

OligarchyUSA 

Oregon State PIRG 

Our Oregon 

PennPIRG 

Piedmont Housing Alliance, Charlottesville VA 

Michigan PIRG 

Rocky Mountain Peace and Justice Center, CO 

Rhode Island PIRG 

Rural Community Assistance Corporation, West Sacramento CA 

Rural Organizing Project OR 

San Francisco Municipal Transportation Authority 

Seattle Economic Development Fund 

Community Capital Development 

TexPIRG 

The Fair Housing Council of Central New York 

The Loan Fund, Albuquerque NM 

Third Reconstruction Institute NC 

Vermont PIRG 

Village Capital Corporation, Cleveland OH 

Virginia Citizens Consumer Council 

Virginia Poverty Law Center 

War on Poverty - florida 

WashPIRG 

Westchester Residential Opportunities Inc. 

Wigamig Owners Loan Fund, Inc., I,ac du Flambeau WI 

WISPIRG 
149 


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Small Businesses 

Blu 

Bowden-Gill Environmental 

Community MedPAC 

Diversified Environmental Planning 

Hayden & Craig, PLLC 

Mid City Animal Hospital, Pheonix AZ 

The Holographic Repatterning Institute at Austin 

UNET 
150 


76120.093

July 20, 2012 

Chairman Spencer Bachus 

Financial Services Committee 

2129 Rayburn HOB 

Washington, DC 20515 

Dear Congressman Spencer Bachus: 

The Hispanic Institute (THI) strongly supports HR 6139, The Consumer Credit Access, 

Innovation and Modernization Act to create a national charter for non-depository institutions. 

THl, as part of our mission, studies Hispanic economic contributions as well as the impact of 

federal and state financial policies on this country's largest minority population. Research 

conducted by THI and others, consistently shows that the traditional banking system fails to 

provide adequate consumer credit to the Hispanic community. Banks demonstrate little interest 

in serving this emerging and robust economic constituency, and inadequate federal government 

regulatory policies do not help. Thus, THI concludcs that national nonbank chartered institutions 

could provide innovative credit products that Hispanic consumers need and desire. 

The Hispanic community trails other groups on most measures of economic well-being and that 

the gap has widened since 2005. A recent report by the Pew Research Center, "Hispanics Say 

They Have the Worst of a Bad Economy," found that while Latinos represent 16% of the U.S. 

population, 75% identified their personal finances as in "only fair" or "poor" shape. 49% delayed 

a major purchase in the last year, and 28% were underwater on their mortgage. 1 A previous Pew 

Research Center study, "Wealth Gaps Rise to Record Highs between Whites, Blacks, and 

Hispanics," reported that the median household wealth among Latinos fell by 66% from 2005 to 

20092

• In 2009, the FDIC reported that 43.3% of Hispanics were either unbanked or under 

banked.3 Three years later, that number is likely to have grown to over 50 percent. These 

statistics underscore that banks continue to underserve the Hispanic community with predictable 

results. 

1 "Hispanics Say They Have the Worst of a Bad Economy," Pew Research Center, January 2012 

2 "Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics," Pew Research Center, July 2011 

3 "FDIC National Survey of Unbanked and Under banked Households," FDIC, December 2009 
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76120.094

It is imperative that the federal government finally look beyond the traditional banking system. 

THI endorses new financial regulatory policies to allow alternative financial services providers 

to invest in credit products and services most suited to our constituency. Two years ago, our 

report "Thinking Outside the Banks: Hispanic Access To Non-Traditional Credit Sources" found 

that in making credit decisions, Hispanics consider several options, include foregoing certain 

purchases or payments (rent/mortgage, health care, transportation. utilities. credit cards, food, 

and fees), or seek alternative credit options. 

Historically, there is no doubt banks have done a fiscal and moral disservice to minorities in 

general and Hispanics in particular. We know that banks have red-lined borrowers in our 

communities, predatorily lent to our families, and preyed on our homeowners with onerous and 

costly subprime lending. Lives and families are being destroyed while banks continue to get a 

slap on the wrist and settlements for pennies on the dollar from a federal government that claims 

to protect consumers. 

As your Committee considers new policies, it's essential that these policies encourage greater 

access to credit services and additional safe and regulated products for low income families. 

Inaction or ineffective changes that constrain access to credit services will bring long-tenn 

negative impacts to Hispanic community. Since traditional banks cannot or decline to broaden 

access to credit, alternative financial services providers can help. They possess the willingness, 

technologies and innovation necessary to bring better credit options to the American market. 

The federal financial regulatory system outdates current consumer credit demands. HR 6139 

will provide the alternative needed to serve the Hispanic community. 

Sincerely, 

Gus K. West 

President and Board Chair of The Hispanic Institute 

www.thehispanicinstitute.org 

906 Pennsylvania Avenue S.E., Washington, District of Columbia, 20003 
152 


76120.095

The 60 Plus Association 

515 King Street .. Suite 315. Alexandria, VA 22314 

Phone 703.807.2070 • Fax 703.807.2073 • www.60Plus.org 

Chairman President Ifonorary Chairman National Spokesman 

July 23. 2012 

House Committee on Financial Services 

Subcommittee on Financial Institutions and Consumer Credit 

Dear Committee Members. 

On behalf of 7.2 million senior citizens, we are writing to express our sllpport for H.R. 6139, the 

"Consumer Credit Access, Innovation and Modernization Act," introduced by Rep. Blaine Luetkemeyer 

(R-MO) and co-sponsored by Rep. Joe Baca (D-CA), Rep. Stephen Fincher (R-TN), Rep. Gregory Meeks 

(D-NY), and Rep. David Schweikert (R-AZ). Our organization prides itself on representing a solid and 

determined group of retired Americans who built their lives honestly and to the best of their God-given 

abilities. Many of our seniors are resorting to credit options to fill holes in their budgets. But given the 

nature of the credit crisis, many find they are not able to get the credit they need. A recent study by the 

National Bureau of Economic Research found that half of Americans are unable to raise $2,000 within 30 

days to meet an emergency. 

Our households represent a diverse and largely middle-class group of senior citizens who worked 

hard and played by the rules. We continue to pride ourselves on our ability to live the rest of our days 

blessedly free from big government interference. 

We also fully understand that some of our seniors do, occasionally, find themselves in need of 

short-term financial support to meet unexpected expenses. Many of our seniors are resorting to transient 

credit options to fill holes in their budgets. But given the nature ofthe credit crisis, many find they are 

not able to get the credit they need. 

It is our understanding ofthe current challenges that confront our economy and the fact that a 

growing class of financial services and technology innovators arc creating short-term credit solutions, 

with fully disclosed fee terms, that lead us to support the overall focus ofH.R. 6139 which was 

introduced last week. 

In the coming months, our supporters and policy team will play close attention to the review of 

this legislation as it winds its way through assorted committees on Capitol Hill. For now, though, we are 

satisfied with the fact that this legislation is the product of bipartisan engagement and the ingenuity of 
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76120.096

teclmology innovators who are matching the market imperative of quick, efficient access to short-term 

credit solution lhat meet the occasional, transient financial needs of 60 Plus members. 

Sincerely, 

James L. Martin, Chairman 

a 

lvledicare, a/Jordable prr.feriplioll 

ipell aJ a stnd adberflltc 10 the """-''''11111011. 

newsletter, SnNIOR VOICE, and a 

Plm has been (,-aIled, Han in(.'f(!asin/!i)' 
154 


76120.097

www.quikpawnshop.com 

July 23, .2012 

The Monorabl€ Shelley Moore Capito, Chairman 

The Honorable Carolyn Maloney, Ranking Member 

House Committee on Financial Services 

Subcommittee on Financial Services Committee and Credit 

2129 Rayburn House Office Bundlng 

Washington, DC 20515 

Dear Chairman Capito and Ranking Member Maloney: 

As an owner of a pawnshop company I am writing to stress my strong support for 

HJt 6139, The Consumer Credit Access, Innovation and Modernization Act, 

sponsored by Representative Luetkemeyer and Representative Baca. 

I commend the bill's sponsors .and committee leadership for taking up this 

important piece of legislation. As someone on the front lilles of the credit crisis, I 

can tell you with certainty that many Americans are not having their credit needs 

met by banks, credit unions or any of the other non bank lenders in the country. 

Many studies support whllt I see on a daily basis, people need loans In the $1000 to 

$5000 range and find that institutions are either unwilling or unable to help them, 

leaving them unable to finance car l'epa!!"s or other midrange expenses or start or 

fund small business operations, 

I understand that the National Pav.'nbrokers Association has come out in opposItion 

to this bill, but as someone who has been in this business for 34 years I strongly 

beHeve that any effort to Increase the credit options of Americans is something that 

should be supported, 

The pawn business lsa noble profession and I am proud to be part of Its storied 

history. But I can tell you as a pawnbroker I am limited in the credit options! can 

offer borrowers. For Instance, I am required to take collateral for any loan! make. 

So even if under my underwrIting standards f beHeve a borrower is a good risk I 

cannot make them a loan without collateral. Under state law, I am required to 

coHect the full princtpal of the loan and my fee in one lump sum within 30 days even 

in determine that the borrower would be better off with a loan that allowed him to 

pay the balance down over a length of time. 

H.R. 6139, would help alleviate this problem by creating a national charter for non· 

depository institutions which would allow companies !.ike mine to develop and offer 

innovative and affordable products to horrowers in a manner simllar to other 

federally chartered lending institutions, Companies chartered under the provisions 

of this legislation would be subject to the full regulatory and supervi.sory authority 

Post Office Box 241525· Montgomery, Alabama 36124·1525·334-281·0052' Fax 334·281·9029 
155 


76120.098

of the Office of Comptroller of Currency (OCC).ln addition, these companies would 

be subjected to the oversight of the CFPB and state attorneys general for additional 

consumer protection. I urge your support for DR 6139. 

Frank Evans 

CEO 

Quik Pawn Shop 
156 


76120.099

STATE OF UTAH OFFICE OF THE ATl'OR"NEY GENERAl. 

MARK L. SHURTLEFF 

ATTORNey GENERAL 

Statement ofHon. Mark Shurtleff, utah Attorney General 011 H.R. 613<}, the "Consumer Credit 

Access, Innovation and Modernization Act," to the Subcommittee on Financial Institntions and 

Consumer Credit of the House Financial Services Committee 

Chairwoman Capito and Members of the Subcommittee, I am pleased to present this testimony 

on H.R. 6139, the "Consumer Credit Access, Inn(lvation and M(ldernizati(ln Act." This bipartisan bill, 

recently introduced by Congressmen Luetkemeyer and Raca, would provide for the issuance of a federal 

operating charter by ace for qualified nonbank lenders which focus their lending activities (In providing 

loans and other financial pr(lducts and services to underserved consumers wh(l generally cannot obtain 

the credit they (lften desperately need from traditional banking institutions. These new lenders also w(luld 

be allowed t(l provide additional credit t(l small businesses with less than 500 employees, 

Let me begin by noting a simple, itTefutable a.nd very troubling truth: we have a sh(lckingly large 

number of Americans----tens of millions of consumers, reportedly perhaps as high as half of an American 

families---who have ongoing needs f(lr small-d(lllar credit extensions and these consumers typically are 

unable to obtain the loans they need from dep(lsitory institutions. Experience has sh(lwn that it is 

extremely diftlcult, if not impossible, f(lr most banks to make a c(lmmercially viable profit on such small 

l(lans. Banks have relatively high operating C(lsts on small loans and, perhaps more significantly, as 

federally insured deposit(lries, necessarily high credit standards to guard against credit losses. 

Underserved consumers typically have tess than perfect credit histories and pOSe higher credit risks. 

Most could not qualiJY under banks' credit requirements cven if these depository instituti(lns (lffered 

more small loons. Banks therefore cannot be expected to be able t(l serve this market segment all a 

widespread basis anytime soon. 

Underse.rved consumers are left with seeking to meet their pressing credit needs by relying 

largely on loans and (lther financial services fr(lm nondepository lenders such as finance companies, titie 

and payday lenders, and pawn shops, and on family and friends, as well as "!(lan sharks" and 

unfortunately increasingly on rogue offshore Internet lenders who disregard federal and state consumer 

pwtection laws and often charge exorbitant prices. This last group is especially concerning to me and 

(lther Attorneys General. 

I applaud the intent ofH.R, 6139 in seeking to provide underserved consumers, as well as small 

businesses, with far more credit alternatives, and ch(lices that arc inn(lvative, more affordable and better 

suited to their needs. From my perspective as Utah's top law enforcement officiall want to focus my 

comments on h(lw I believe this legislation addresses consumer protection, First, I believe that having 

these new Consumer Credit C(lrporati(lns should greatly increase competition in the underserved segment 

of the marketplace. Competition will lead to more innovation and lower prices for consumers, and it 

will help weed (lilt many of the bad actors. In that regard, if enacted, this bHl would go a long way 

towards overcoming the growing problem we now have with tmregulated (lffsh(lre fntcrnet lenders. 

UTAH ST,<\'12 CAPiiot ~ 350 NO,,'TH STAr" STH~ET, SLJITI', zsn· p,o. Box 142320 • SAL'!' LAK£< CITY, UTAH 84114·Q320 

TI';l~PHONf': (801) 536-9600 • FAX; {801) 5S6·1121 
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76120.100

Consumers are likely to shift to well-regulated domestic Internet and storefront lenders operating as 

Consumer Credit Corporations which should be able to offer them better priced, more suitable financial 

products. 

Let me add a word on the importance of promoting competition as opposed to protecting 

competitors. I am sure that you will have some nonbank lenders strongly oppose this bill because they 

fcar competition from these new federally chartered lenders. This is not surprising, especially since 

many nonbank lenders essentially have be granted very profitable credit monopolies under various state 

laws to offer limited types of high cost, high profit credit products. I urge you from a public policy 

perspective to have your decisions on this legislation guided by the principle of promoting competition, 

not protecting competitors. 

Now, my other main concern with this legislation is whether it provides for adequate consumer 

protections and for a strong role for State Attorneys General or other state regulators as the "cop on the 

street" to enforce those protections. As this legislation was being drafted, I conveyed these concerns to 

its sponsors and am very pleased that they have addressed them in H.R. 6139 as introduced. Specifically, 

the bill provides that all federal financial consumer protection laws apply to these new Consumer Credit 

Corporations, just as they do to other creditors, be they depository or Ilondepository lenders. In that 

regard, in addition to acc enforcement of this bill's provisions, the Consumer Financial Protection 

Bureau (CFPB) would have full enforcement authority under those federal laws to regulate Consumer 

Credit Corporations. Most impOltantly from the perspective ora State Attorney General, H.R. 6139 

provides that State Attorneys General, or comparable State regulators, would have full authority to 

investigate violations and enforce the provisions oflhis legislation without specific acc authorization, 

and all of these State officials' existing enforcement authorities under the Dodd-Frank Act and various 

federal laws and regulations are preserved. I strongly endorse these provisions and urge that Congress 

adopt them. 

In closing, r want to comment on the bill's preemption provision, which is based on the workable 

concepts that Congress passed in the Dodd-Frank Act. While I believe that federal legislators should be 

judicious in applying federal preemption, I recognize that in some cases it is appropriate, and I think this 

is one of them. Simply put, we have a credit crisis for millions of Americans in literally every state. 

Congress must act to provide far better credit access to these underserved consumers who cannot obtain 

adequate credit from traditional banking institutions. The current patchwork of widely differing, often 

conflicting and outdated state laws clearly does limit innovation and product offerings by nonbank 

lenders who now serve this market and high lender compliance costs raise consumcrs' costs. What other 

way is there to cut through this regulatory morass than to provide at least an optional federal approach for 

nonbank lenders to be able to offer consumers many more credit choices? Frankly, I see none. 

Given that this legislation provides state regulators with full enforcement authority of all 

applicable federal laws, I am comfortable with applying preemption in this instance. These federal laws 

and implementing regulations provide very strong and quite adequate consumer protections, and I and 

other state regulators will have no impediment to enforcing them to protect the consumers in our 

respective states. 

r commend H.R. 6139's sponsors for their thoughtful approach to addressing our nation's 

consumer credit crisis and for their responsiveness to the concernS I and other state regulators have 

raised, and I urge this Subcommittee to move H.R. 6139 forward toward enactment. 

-2-
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76120.101

JOHN E. SWAlLOW 

Chll'110epl.Ily 

STATE OF UTAH On!CE OF THE ATTORNEY (;"NERAt 

MARK L. SHURTLEFF 

ATTORNEY GENERAL 

Protecting Utah· Protecting You 

july 23, 2012 

The Honorable Shelley Moore Capito, Chainnan 

The Honorable Carolyn B. Maloney, Ranking Member 

The Financial Institutions and Consumer Credit Subcommittee 

The Committee on Financial Services 

United States House of Representative 

2129 Rayburn House Office Building 

Washington, DC 20515 

Dear Chainnan Capito and Ranking Member Maloney; 

KIRK TORGENSEN 

Chiel0>9put" 

As an Attorney General tasked with upholding critical consumer protections, 1 am writing 

to you on behalf of consumers at risk across my state. Specifically, I am reaching out today in 

response to your request for comments on the Consumer Credit Access, Innovation and 

Modernization Act. 

This bill would authorize the Comptroller of the Currency (OCC) to issue federal 

operating charters to National Consumer Credit Corporations (NCeCs) which ,,,ould be 

nondepository lenders that focus their lending activities on providing many more affordable 

credit options to underservcd consumers, as well as to small businesses. NCCCs would be 

subject to regulation and supervision by the GCC with respect to their business operations and by 

the Consumer Financial Protection Bureau (CFPB) with respect to compliance regarding all 

federal consumer financial protection laws (e.g., Truth in Lending), NCCCs would also be 

subject to nondiscriminatory state consumer protection laws and other such state lending laws 

that do not prevent or significantly interfere with a NCCC's exercise of it~ powers in providing 

OCC approved products to underserved consumers. In essence, the bill follows the preemption 

standards set out in the Dodd-Frank Act applicablc to national banks. In addition, the bill 

provides for State Attorneys General to enforce the provisions of this bill in areas where oce is 

the primary regulator on a case-by-case basis, and, most significantly, State Attomeys General 

UTAH STNE CAPITOL' 350 NORTH STAT£ STREET, SU'TE 2-30 • F,O, Box 142320' SALT LAKE CITY, UTAH 84114,,232Q 

TELEPHONE;; (001) 538-9600 • FAX: (801) 530·1121 
159 


76120.102

The Financial Institutions and Consumer Credit Subcommittee 

The Committee on Financial Services 

July 23,2012 

Page Two of Three 

also would retain their separate authority lmder Dodd-Frank to enforce federal consumer 

financial protection laws with respect to these new federally chartered nondepository lenders. 

As pointed out in the Congressional Findings in the bill, it is well established that tens of 

millions of Americans----around half of all families----have periodic needs for short-term, small 

loans and other nondepository financial services that they cannot obtain from traditional banking 

institutions, typically because their credit history prevents them from qualifying for loans under 

the high standards insured depositories must maintain. To meet their pressing credit needs, 

these consumers throughout the nation must and do rely primarily on nondepository lenders, such 

as finance companies, payday and title lenders, and pawn shops, which have more flexible credit 

standards. 

My state has its own unique set of laws that govern what types of credit products may be 

offered to local consumers. While state lending laws offer important consumer protections, as 

noted in this bill's findings, they also can have other effects that adversely impact consmners. 

Differing state laws do increase lenders' compliance costs, which are passed on to consumers, 

and they typically only allow lenders (0 ofTer a narrow range of credit options which in many 

cases are not well suited to a consmner's particular needs. However, from the perspective of an 

Attorney General as tile chief law enforcement officer in my state, there is a serious and 

disconcerting issue presented that is growing rapidly. 

Millions of consumers in states throughout the nation are turning to online lenders to 

meet their credit needs. While legitimate U.S. based online lenders are an important source of 

credit and are regulated by federal and state laws, there also are many offshore online lenders 

who are now operating in disregard of our laws and in many instances engaging in abusive 

lending practices. It is extremely challenging under the best of circumstances to take effective 

enforcement actions against these offshore lenders. While your bill is not intended to directly 

address this problem, we believe that it will help do so indirectly. If consumers have more 

affordable, better-suited and well-regulated domestic credit options, they will be far less likely to 

seek credit from unregulated offshore lenders. And, increased competition should also provide 

other consmner benefits such as lower priced products. 
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76120.103

The Financial Institutions and Consumer Credit Subconmlittee 

The Committee on Financial Services 

July 23,2012 

Page Three of Three 

While consumers deserve to have ample affordable credit alternatives, my main concern 

as Attorneys General is to ensure that any creditor operating in my state are subject to strong 

consumer protection laws, be they state or federal statutes, and, most significantly, that my office 

has authority to enforce these laws against lenders who do not abide by them. In this regard, I 

want to point out that we already have a so-called "dual banking system," with both federal and 

state chartered and regulated depository institutions, where state Attorneys General have 

considerable authority to enforce federal consumer financial protection laws, as well as 

applicable state laws. If your lcgislation is enacted, we will still have state licensed and 

regulated nondepository lenders as well as the new NCCCs that will bring more competition to 

this market segment. 

I am pleased that this legislation would make NCCCs fully subject to not only GCC 

regulation as to their business operations, but also to regulation by the new federal Consumer 

Financial Protection Bureau (CFPB), which would be their primary regulator with respect to all 

federal consumer fmancial protection laws. This is quite important from our perspective because 

Attorneys General have significant authority under the Dodd-Frank Act to enforce the federal 

consumer fmancial protection laws and CFPB' s implementing regulations. It also is appropriate, 

as you have provided for to have the case-by-case state enforcement authority in areas where 

GCC is the primary regulator, and to follow the more restrictive Dodd-Frank preemption 

standards instead of adopting a broader approach. 

Sincerely, 
161 


76120.104

Kenneth W. Edwards' Responses to Questions for the Record 

Financial Institutions & Consumer Credit Subcommittee Hearing 

Examining Consumer Credit Access Concerns, New Products, and Federal Regulations 

1) Your testimony seems to contend that ifH.R. 6139 were to be enacted, the CFPB would 

not have the authority to regulate National Consumer Credit Corporations. The 

legislation. however, specifically states on page 24, that a credit corporation is, "subject 

to all otherwise applicable provisions of federal statutes and regulations, including the 

consumer financial protections laws listed under section 1002(12) of the Consumer 

Financial Protection Act 01'2010 [and implementing regulations]." This includes CFPB 

enforcement and all federal consumer protection laws. How do you reconcile your 

position with this legislative language? 

RESPONSE: The enumerated consumer laws, listed under Title X, section 1002(12) of 

the Consumer Protection Act of 20 10 (hereinafter "Dodd-Frank"), specifically refer to the 

18 enumerated consumer laws transferred whole or in part to the CFPB from other 

fcderal regulatory agencies. I These enumerated statues do not specifically relate to the 

CFPB's regulatory purview of non-depository institutions, such as National Consumer 

Credit Corporations (hereinafter "non-depositories"). Title X, section 1024 of DoddFrank relates to the CFPB's supervision, rulemaking, and enforcement authority over 

non-depositories.2 This section explains that, to thc extent federal law permits the CFPB 

and another federal agency to issue regulations, conduct examinations, or require reports 

from non-depositories-the CFPB shall maintain exclusive authority to write rules, issue 

guidancc, conduct exanlinations, or require repOlis regarding such non-depositories] 

Accordingly, the CFPB could share Title X, section 1024's authority with another 

agency, to the extent authorized by federal law. But as CRL's written testimony 

illustrates, even where regulatory authority might be split between the Office of the 

Comptroller of the Currency (OCC) and CFPB, H.R. 6139 contemplates a potentially 

incongruent regulatory regime. That is, the OCC may approve non-depositories' 

offerings of financial products that could also violate Dodd-Frank's provision against 

unfair, deceptive, abusive acts or practices4 Such a scenario would present a confusing 

regulatory framework-resulting in the agencies facing off in federal court during 

protracted and intense inter-agency litigation. 

2) A good portion of your testimony focuses on the problems with payday loans and your 

contention that H.R. 6139 would allow NCCCs to otTer pay day loans at a national leveL 

1 The Dodd-Frank Wall Street Reform and Consumer Protection Act of2010 §I002(l2), 12 U.S.c. §5481(l2). 

'[dat §1024, 12 U.S.c. §5514. 

3 Idal §I024(d), 12 U.S.c. §5514(d), 

4 Id. at §1031, 12 USc. §553 1. 
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76120.105

This is done even though the bill specifically prohibits NCCCs from offering a product 

with a tenn of30 days or lcss-the typical tenn of traditional payday loans. Considering 

this, and given that the acc has also stated its opposition to payday products and their 

ability under the bill to approve or disapprove of products, why do you believe that HR 

6139 will allow NCCCs to offcr pay day products on a national level? Either way, would 

it not be simple to reiine the bill if needed to makc it clear that no payday advance 

product could be offered by a NCCC? 

RESPONSE: In the past, payday lenders have augmented their products so they would 

fit within the letter of state law. We expect that payday lenders would do so in this case, 

moving from a two-week loan teml to a loan tenn of32 days, for instance, in order to 

avoid the reach of the CFPB. In addition, although the typical payday loan term today is 

about two weeks, payday loans may be structured for varying durations, including tenns 

of 31 days or more. Also, the Departmcnt of Defense, under the Military Lending Act, 

defines a payday loan, in part, as having a teml of91 days or fewer. l lLR.6139's 

prohibition of non-depositories offering financial products with a tenn of 30 days or 

fewer would not prohibit charter holders from otTering payday loans with longer tenns. 

Furthermore, Cash America-one of the nation's largest payday lenders-is a chief 

proponent ofH.R. 6139. And Cash America's strong support for the legislation 

substantiates the likelihood that chartered non-depositories would offer payday loans 

nationwide, despite attempts to refine the bill with language prohibiting payday advance 

products. 

3) Do you believe that the currcnt patchwork of state laws and regulations allow for 

underserved consumers across the country to have acccss to a sufficient range of credit 

products? If not, what can be done to ensure that these options are increased? 

RESPONSE: States are the traditional regulator of most small loan products, including 

payday loans. In fact, state regulations of nonbanks have existed for over 200 years. 

State regulations are at the ground level in the fight against predatory short-tcnn lending. 

But H.R. 6139 would allow chartered non-depositories to offer payday loans in 

jurisdictions that have either outlawed or substantially regulated such financial products. 

The Pew Charitable Trusts recently released a survey that revealed, in part, two key 

findings: 

"[I]ffaced with a cash shortfall and payday loans were unavailable, 81 percent of 

borrowers say they would cut back on expenses. Many also would delay paying 

some bills, rely on friends and family, or sell personal possessions." 

5 32 C.F.R. §232.3(b)(1)(j). 

2 
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76120.106

"[IJn states that enact strong legal protections, the result is a large net decrease in 

payday loan usage." 6 

As the research findings illustrate above, where payday lending is heavily regulated or 

otherwise unavailable, consumers indicate by wide margins their preferences for 

alternative means to meet cash shortfalls. Preferences to have increased access to a range 

of payday advance products arc not supported by the evidence. But consumers should 

have access to safe, affordable, and sustainable loans that reasonably assess their ability 

to repay. Many lenders made little efforts to ofTcr consumers safc loans leading up to the 

financial crisis-resulting in disastrous effects for many American households. Lenders 

can meet underserved consumers' short-tenn credit needs by ensuring financial products 

do not ensnare borrowers in financial-debt traps. Small-dollar lending serves consumers 

best, for instance, with telms that are fully an10ltizing and have interest rate caps. 

4) Do you think that depository institutions will provide in the near future an adequate level 

of affordable, non-abusive credit products to most, or even a majority of underserved 

consumers, many of whom cannot currently access mainstream financial products from 

these same institutions? 

RESPONSE: Market demand will dictate the extent to which depository institutions will 

provide safe, affordable, non-abusive small-dollar credit products. All lending should be 

done within the frameworks of strong consumer protection and institutional safety and 

soundness. 

5) Given the current state of affairs and ilie limited availability of small dollar, short-term 

credit products that millions of underserved Americans need, the fact that these samc 

underserved Americans carmot gain access to mainstream credit products offered by 

depository institutions, and your stated opposition to H.R. 6139, what do you propose 

that Congress do to ensure these consumers have an adequate range of credit options to 

meet their needs? 

RESPONSE: Considering the on-going innovative efforts of the financial marketplace, 

sensible rules of the road must be established to ensure its safe operation for consumers. 

Congress granted the CFPB ilie authority to make this happen. To ensure that 

underserved consumers have access to an adequate range of credit options, Congress 

should allow the Bureau to do its job in protecting American consumers from harmful 

6 The Pew Charitable Trusts, Payday Lending in America: Who Borrows. Where They Borrow. and Why, July 19. 

2012, http://www.pewstates.org/uploadedFi1es/PCS Assets/lOI2/Pew Paydav Lc.vding Report.pdf. Pew's 

findings also revealed the results of a focus group that Pew conducted, in 2011, ncar Manchester, New Hampshire. 

Borrowers mentioned the various strategies they used instead of payday loans, since storefront lenders were no 

longer there. Responses included: "budgeting, prioritizing bills, pawning or selling belongings, [and] borrowing 

from family members .... " !d. at 17. 

3 
164 


76120.107

financial products, and allow states to continue to provide protections to their respective 

residents. 

1. H.R. 6139 would change disclosure of credit costs for all creditors, including NCCCs, 

and use a more accurate disclosure instead of TIL A's APR disclosure for credit 

extensions of one year or less. Other than this change, what other federal statutory or 

regulatory changes does (he bill make that would subject NCCCs to provisions less 

stringent than current fedcrallaw? 

RESPONSE: Under H.R. 6139, chartered non-depositories would be subject to the 

OCC's supervisory and rulcmaking authority-although the agency has no experience in 

non-bank regulation. Leading up to the financial crisis, as a prudential regulator, the 

OCC was primarily focused more on the safety and soundness of the financial institutions 

it regulated-and less so on consumer protection. Ironically, it was the OCC's lack of 

focus on consumer protection that led to the dismantling of the safety and soundness of 

some of its regulated entities. Also during that time, many non-depository financial 

institutions were engaged in reckless predatory lending with little oversight. The result 

was an unleveled playing field between banks and nonbanks. In addition, these 

institutions often targeted the most vulnerable consumers with financial products that 

contained abusive loan tenns. Congress created the CFPB to correct such egregious 

market failures, end unsustainable lending, and protect consumers from harmful financial 

products and services. And Title X, section 1024 of Dodd-Frank, tasks the Bureau with 

the specific power to supervise non-depositories and to level the playing field. This 

authority should remain within the sole purview of the CFPB. 

2. Does CRL feel that consumers will not be adequately protected on consumer financial 

services matters by federal laws and regulations, and CFPB's regulatory, supervisory and 

enforcement powers? 

RESPONSE: Since having an appointed director for about 10 months, the CFPB has 

begun exercising its full authorities granted by Congress, including launching its nonbank 

program to supervise non-bank entities, such as payday lenders. 7 But it is important to 

note that as the CFPB goes about making America's financial markets safe, and 

protecting consumers from harmful financial products and services, the CFPB's efforts to 

do so should not be intentionally undemlined or circumvented by those who would prefer 

less consumer protection and regulatory oversight. The CFPB should be allowed to go 

about its mission to protect American consumers from unfair, deceptive, abusive acts or 

7 Prepared Remarks by Richard Cordray, Director of the Consumer Financial Protection Bureau, The Brookings 

Institution, Jan. 5, 2012, http://www.brookings.edu!-/medialevents/20 121l!05%20cordray/Ol 05_ cordray_remarks. 

4 
165 


76120.108

practices. And if the CFPB fails to do so, then Congress should exercise oversight to 

ensure that the CFPB does its job. 

3. In your testimony, you express concern as to how CFPB and OCC will interact under 

H.R.6139. What specific provisions cause problems and what sections, if any, prevent 

CFPB from using its full set of powers \",ith regard to NCCCs? 

RESPONSE: As indicated above, the enumerated consumer laws, listed under section 

1002(12) of Dodd-Frank, specifically refcrs to the 18 ennmcrated consnmer laws 

transferred whole or in part to the CFPB from other federal regulatory agencies. These 

enumerated statues do not specifically relate to the CFPB's regulatory purview of nondepository institutions. Title X, section 1024 of Dodd-Frank relates to the CFPB's 

examination, mlcmaking, and enforcement authority over non-depositories .. And section 

3( d) states that such authority is exclusive to the CFPB to enforce federal consumer 

financial laws, including any regulations thereunder, to thc extent federal law authorizes 

the CFPB and another federal agency to issue regulations, guidance, or conduct 

examinations regarding such non-depositories. 

And so, the CFPB could share Title X, section 1024's authority with anotller agency, 

where authorized under federal law. But as CRL's wTitten testimony illustrates, even 

where regulatory authority might be split between the OCC and CFPB, H.R. 6139 

contemplates a potentially incongruent regulatory regime. That is, the OCC may approve 

non-depositories' offerings of financial products that eould also violate Dodd-Frank's 

provision against unfair, deceptive, abusive acts or practices. Such a scenario would 

present a confusing regulatory framework-·resulting in the ageneies facing off in federal 

court, during protracted and intense inter-agency litigation. 

4. Does CRL believe that a large number of Ameriean eonsumers are unable to obtain the 

eredit periodically need from traditional banking institutions (other than expensive 

overdraft protection products) and ohtain credit from nonbank lenders, including 

increasingly unregulated offshore Internet lenders? 

RESPONSE: Payday lenders often erroneously state that there is a huge demand tor 

their product. CRL's report, Phantom Demand, demonstrates that 76 percent of so-called 

"demand" tor payday loaos comes directly from loan chuID----Df, consumers being forced 

to take out additional payday loans in order to be able to aflord to pay back the original 
166 


76120.109

loans The fact is there is a lot less demand for short-ternl loan products than meets thc 

eye. 

5. Your organization appears to opposc many of the short-tenn, small loan products otlered 

by nonbank lenders. Please provide the Subcommittee with a detailed explanation of a 

range of credit products that you believe can be offered on a commercially-viable basis 

by nonbank lenders and a list of commercially-viable products that could be offered by 

depository institutions, to meet the credit needs of underserved consumers? 

RESPONSE: As noted earlier, much of the so-called demand for payday loans comes 

directly from the lack of afford ability of the product, combined with a short-term, balloon 

payment. A rangc of commercially viable credit products that can be offered to 

consumers include, for instancc---{)verdraft lines of credit, payday loans that come under 

36 percent APR cap, installment loans that come under a 36 percent APR cap, credit card 

lines of credit. 

8 Leslie Parrish and Uriah King, "Phantom Demand: Short-Term Due Date Generates Need for Repeat Payday 

Loans, Accounting for 76% of Total Volume." Center for Responsible Leuding, July 9, 2009, 

http://www.responsiblelending.orglpayday-Iendinglresearch-analysis!phantonl-demand-excc-summary-final.pdf. 

6 
167 


76120.110

Congressman Joe Saca 

Financiallnstitutions & Consumer Crcdit Subcommittee Hearing 

Examining Consumer Credit Access Concerns, New Products, and Federal 

Regulations 

Questions for the Record 

Questions for Grovelta Gardineer, Deputy Comptroller for Compliance Policy, Office of 

the Comptroller of the Currcncy 

1) rfyou agree that so many Americans have serious credit access problems and you 

do not like HR 6139's approach for addressing them, can you explain in detail how 

the OCC believes these problems can be promptly and effectively resolved? 

Response: Congress, in the Dodd-Frank Act, authorized the Treasury Department to 

establish programs with depository institutions, community development financial 

institutions, state and local governments, and others to encourage the provision of 

low-cost, small-dollar loans to consumers, so as to create viable alternatives to 

costlier loans. The oec believes such programs will provide a valuable mechanism 

for supervisors and industry participants to collaborate on innovative approaches to 

address the needs of underserved consumers and consumers who may have blemished 

or limited credit history and, thus, limited access to traditional credit products. 

The OCC provides guidance to the depository institutions that we supervise through a 

variety of methods, including through the issuance ofOCC Bulletins and Advisory 

Letters, by participating in industry conferences and forums, and through in person 

meetings with bankers to discuss the depository institution's efforts to offer products 

and services to underserved markets. This guidance and outreach establishes 

expectations that depository institutions will offer financial products and services in a 

safe and sound manner, and in compliance with consumer protection laws and 

regulations. Additionally, the oec encourages depository institutions to offer 

innovative and affordable financial products and services, as doing so will be 

considered when the agency evaluates the institution's Community Reinvestment Act 

(CRA) perfonnance. 

2) In your testimony, you state that your opposition to HR 6139 is based in part by 

your contention that the small-dollar, shorHenn loans which the proposed NCCCs 

would be able to offer would be dependent on trapping consumers into repeated 

credit transactions, causing a never-ending cycle of debt. Given the fact that many 

of these products are authorized and regulated at a state level, do you believe that 

the state regulators and legislatures that oversee the nonbank lenders offering these 

products are failing to provide adequate consumer protection? 

Response: The OCC does not have any data or infonnation that suggests that state 

regulators and legislatures are not meeting their obligations with regard to consumer 

protections. 
168 


76120.111

3) Do you believe that it is realistic to expect that current depository institutions can 

offer underserved consumers a variety of innovative, affordable, and non-abusive 

loans on a widespread, commercially viable basis enough to meet the current 

growing credit needs of many Americans? If so, why aren't these institutions 

doing so now? 

Response: The financial sector is designed to accommodate multiple lending business 

models, which includes both depository and non-depository entities, to meet the credit 

needs of the market. Although each depository institution'S Board of Directors and 

executive management team havc discretion in terms of the products and services that 

are offered to the ptlblic, the choices made must still be consistent with the 

institution's approved business plan, its risk management capacities, and the expertise 

of its personneL Moreover, the Board and management must consider the 

competition to be £'lced before offering new products or services. The OCC requires 

that the national banks and Federal savings associations which it supervises provide 

financial products and services to their customers in a safe and sound marmer and in 

compliance with consumer protection laws and regulations. Banks and Federal 

savings associations that offer credit products, including small-donar loans, may 

require tbat customers have existing depository relationships with them as a condition 

of extending credit. Many consumers choose to not have traditional banking 

relationsbips or deposit accounts, opting instead for products offered through nondepository entities, including retail outlets. 

4) Your testimony states, on one hand, that most ofthe small dollar, short-term credit 

products offered by nonbank lenders are inherently abusive products and should 

not be allowed. However, it also states that where these products are offered, state 

officials and the CFPB have adequate authority to regulate tbese products and 

services and the companies that provide them. How do you reconcile these two 

seemingly conflicting views? 

Response: Our supervisory experience with products such as payday loans, tax 

refund anticipation loans (RALs), and automobile title loans, is that tbey are based on 

a business model that is not sustainable, as they often reflect excessive fees, repetitive 

use, high default rates, and failed efforts at compliance with applicable laws and 

regulations. Because these products frequently reflect abusive lending practices, the 

OCC has clearly and consistently reminded the institutions that it supervises of the 

compliance, legal, and rcputation risks posed by these products. For those entities 

that choose to offer these products, the OCC makes clear that they must do so in a 

safe and sound, and legally compliant, marmet. 

The OCC believes that Congress provided sufficient statutory authority to the 

CFPB so that it can carry out its mission of protecting all consumers. The CFPB is 

authorized to issue rigorous, uniform, and nationally-applicable protection 

standards for consumer financial products and services, without regard to whether 

these products and services are offered by banks, nonbanks, or Federal savings 

associations, nor with regard to whether the institutions are supervised by Federal 

or state regulators. 
169 


76120.112

Questions for the Record from Rep. Blaine Luetkemyer (M0-9) 

Subcommittee on Financial Institutions, Committee on Financial Services, 

U.S. House of Representatives 

Hearing held on July 24, 2012, entitled "Examining Consumer Credit Access Concerns, 

New Products and Financial Regulations" 

Questions for Grovetta Gardineer, Deputy Comptroller for Compliance Policy, Office of 

the Comptroller of the Currency 

I) Does OCC agree that tens of millions of Americans, as many as half of all 

families, cannot obtain small, short-tenn unsecured personal loans from the federal 

depository institutions you regulate and from state chartered depositories when they 

need them, and who must therefore periodically rely on credit products from state 

licensed nonbank lenders? If not, do you have empirical data showing a lack of 

need? 

Response: The OCC recognizes the importance of providing underserved consumers 

greater access to innovative and affordable financial products and services. The OCC 

does not collect data on this type of lending for national banks and Federal savings 

associations, the depository institutions that we supervise. Moreover, we are unable to 

comment on the activities of institutions or entities that we do not supervise. 

2) Your testimony states that OCC has encouraged depositories "through many routes" 

to offer innovative and affordable financial products and services. What have these 

"routes" !:cen, and why don't most depositories offer such products? For the 

institutions that do offer these products, why aren't the most underserved consumers 

given access to thcse products? 

Response: The OCC provides guidance to the depository institutions that we supervise 

through a variety of methods, including by issuing OCC Bulletins and Advisory 

Letters, by participating in industry conferences and fonlIDs, and through in-person 

meetings with bankers to discuss the depository institution's efforts to offer products 

and services to underserved markets. This guidance and outreach establishes 

expectations that national banks and Federal savings associations will offer financial 

products and services in a safe and sound manner, and in compliance with consumer 

protection laws and regulations. Additionally, the OCC encourages these depository 

institutions to offer innovative and affordable financial products and services, as 

doing so will be considered when the agency evaluates the institution's Community 

Reinvestment Act (CRA) perfonnance. 

Although each depository institution's Board of Directors and executive management 

team have discretion in tenns of the products and services offered to the public, the 

choices made still must be consistent with the institution's approved business plan, its 

risk management capacities, and the expertise of its personnel. Moreover, the Board 

and management must consider the competition to be faced before offering new 

products or services. Banks and Federal savings associations that offer credit 

products, including small-dollar loans, may require that customers have existing 

depository relationships with them as a condition of extending credit. Many 
170 


76120.113

consumers choose to not have tnlditional banking relationships or deposit accOllllts, 

opting instead for products offered through non-depository institutions, including 

retail outlets. 

3) Does OCC believe that CFPB has ample statutory authorities Illlder federal law to 

adequately protect Illlderserved consumers from abusive lending practices by 

nonbank lenders? If not, what regulatory authority has Congress failed to provide? 

Response: The OCC believes that Congress provided sufficient statutory authority 

to the CFPB so that it can carry out its consumer-protection mission. The CFPB is 

authorized to issue rigorous, uniform, and nationally applicable protection 

standards for consumer financial products and services, without regard to whether 

these products and services are offered by banks, nonbanks, or Federal savings 

associations, nor with regard to whether the institutions are supervised by Federal 

or state regulators. 

4) Does OCC believe that consumers clearly Illlderstand the calculation and meaning 

of APR for short-term loans (one year or less)? Do you disagree that an APR 

disclosure can be confusing and distort what many people will think is the actual cost 

of a short-term loan of a year or less? Given that some lenders charge additional 

fees not included in APR calculations, are APRs somewhat misleading? Are all 

credit alternatives including overdraft fees charged by OCC-regulated banks, 

required to be disclosed in APR terms? 

Response: Under current consumer protection laws and regulations, depository 

institutions are required to disclose all fees associated with the extension of credit. 

Consumer loan disclosures are complex and may be difficult for the average consumer 

to understand. The CFPB has rulemaking authority for the Truth in Lending Act 

(TILA). TILA promotes the informed use of credit by consumers, including by 

requiring that creditors make accurate disclosures of the cost and terms of consumer 

loans. The CFPB is in the process of updating Regulation Z, the rule which 

implements TILA, and additionally, is developing new disclosure statements intended 

to provide consumers with the ability to compare credit products offered by different 

insti tuti ons. 
171 


76120.006

Exhibit 1 

STATEMENT of 

WILLIAM M. ISAAC 

Former Chairman, Federal Deposit Insurance Corporation, 

July 24,2012 

I commend the subcommittee for conducting this hearing on the important issue of access to credit for 

cash-strapped consumers and small businesses. I wish I were able to participate in the hearing in person 

and would appreciate my written statement being made part of the record. 

I am former Chairman of the Federal Deposit Insurance Corporation; Senior Managing Director & Global 

Head of Financial Institutions for FTI Consulting; and Chairman of Fifth Third Bancorp. The opinions I 

express are my own and do not necessarily reflect the views of these organizations. 

I appreciate Congressmen Luetkemeyer and Baca taking the time to fashion an innovative approach to 

increasing the flow of small loans to individuals and businesses. As reported in the "findings" of their 

bipartisan bill, studies by the FDIC and others "have shown that roughly half of all American families ... 

are literally living paycheck-to-paycheck." I think we can all agree that we need more education in 

financial literacy, and we need more stable sources of credit. 

I believe the proposed Consumer Credit Access, Innovation, and Modernization Act's creation of 

optional federal chartering for non-bank lenders is an innovative approach that could yield many 

benefits. It's difficult for me to see a downside to the bill. 

The legislation would create an optional federal charter for non-depository lenders at the Office of the 

Comptroller of the Currency, which has chartered national banks for 150 years. The legislation instructs 

the Comptroller to focus on the "true cost" of the loan product rather than the annual percentage rate 

(APR) and facilitates the offering of short-term lending products best suited to the needs of borrowers, 

beyond payday lending. 

I have long been critical of interest-rate ceilings that restrict or effectively prohibit short-term personal 

loans from banks and non-bank lenders. While the APR provides useful information to consumers when 

comparison shopping for loans, it is inappropriate to use it to cap interest rates on short-term lending. 

Hearing about a 390% APR for a payday loan, for example, is at first blush jarring. But after thinking 

about it more carefully, one recognizes the value proposition. The APR on a payday loan is much lower 

than the APR on a typical fee for a bounced check or for a late mortgage or credit card payment, or the 

fee for getting your electricity turned back on after it has been cut off due to late payments. The loan 

fee is definitely much less than the lost income when you can't get to work because you can't afford to 

get your car repaired. These are typical of the choices facing customers who take out a short-term loan. 
172 


76120.007

The plain truth is that tens of millions of people from all walks of life decide their best option is to do 

business with non-bank, short-term lenders. The terms are very easy to understand - you borrow $200 

and you pay back $230 two weeks later. Critics claim this amounts to predatory lending, a charge I don't 

understand. The loans are unsecured and if you default, there is not much the lender can do except not 

grant another loan. The lender cannot evict you from your house or take your car. It's not economic for 

the lender to even file a collection suit. 

The legislation addresses directly the criticism that payday loans are never really repaid - just renewed 

over and over. I believe this criticism is blown out of proportion, particularly in comparison to other 

types of borrowing. The high APRs and short maturities on payday loans make it impossible to keep the 

rollover game going for very long, in contrast to credit card and other revolving debt. 

In any event, to the extent rollover loans are a problem, it is largely because state regulatory barriers 

effectively prohibit lenders from offering borrowers more suitable options, such as installment loans, 

which most lenders would very much like to do. As John Berlau ofthe Competitive Enterprise Institute 

noted in a recent paper, "In California, a nonbank lender can make a payday loan in the maximum 

amount of $300 or an installment loan in the minimum of $2,500. This leaves a big gap in the middle." 

The Luetkemeyer-Baca legislation will help bridge this gap by allowing safe, regulated and innovative 

loans to flow across state Jines and benefit consumers and small businesses. It will do so without 

exposing taxpayers to any risk, as these federally chartered and regulated, short-term lenders will be 

required to raise their capital and funding entirely from private sector sources without the benefit of any 

federal guarantee. 

The financial record of non-bank short-term lenders over recent decades has been impressive in good 

times and bad. Short-term lending is relatively risky, but the risks are ameliorated due to diversification 

in the portfoliO, and the risks are priced into the fee structure. It is quite feasible to maintain high loan 

loss reserves and strong capital against short-term loans and achieve good returns if the short-term 

lender is an efficient operator. 

Reducing unnecessary regulatory barriers will increase competition for bank and non-bank lenders and 

will foster sustainable sources of credit for consumers and small businesses. This will in turn stimulate 

economic growth and job creation. The Luetkemeyer-Baca bill appears to be an important step in the 

right direction and deserves a fair hearing and serious consideration. 
173 


76120.114

Responses of John Munn, Director, Banking and Finance, State of Nebraska 

Department of Banking and Finance (October 3,2012) 

Congressman Joe Baca 

Financial Institutions & Consumer Credit Subcommittee Hearing - Examining Consumer Credit 

Access Concerns, New Products, and Federal Regulations 

Questions for the Record 

Questions for John Munn, Director, Banking and Finance, State of Nebraska Department of 

Banking and Finance 

1) Do you agree that there is a serious 'credit crisis' for underserved consumers 

throughout the country, or at least a major public policy problem because there is 

a clear lack of credit alternatives for millions of Americans as all major studies 

appear to indicate? If so, what are you and other state banking officials doing to 

address this problem? 

I agree that the ability to provide a broad ronge of consumers with sustainable credit is an 

ongoing challenge for the financial services industry. Addressing this need requires increased 

understanding the complex companents of this problem. As the FDIC's most recent National 

Survey of Unbanked and Underbanked Households notes, 

"Different subgroups among unbanked and underbanked households have different 

characteristics and varying levels of demand for banking services. Understanding these 

differences could lead to the development of products and strategies that more 

effectively engage these households."l 

Clearly, this must be an ongoing effort by all stakeholders. However, as the recent financial 

crisis iIIustrotes, credit that is not sustainable and not backed by a sound infrastructure of 

oversight and consumer protection ends up creating a much larger problem. 

State regulators continue to work with our regulated entities, other locol stakeholders, and 

federol regulators to explore avenues for expanding credit availability responsibly. There is no 

"one size fits all" solution to this problem, and banks and credit unions have explored - and 

continue to explore - new avenues for serving underserved borrowers. 

A few years ago, the FDIC launched a Small Dollar Loan Program. Institutions from across the 

country participated in this initiative, which sought to support banks' efforts to offer short term 

loans that provided an affordable alternative to higher cost products. Loan offered under this 

product were for $2,500 or less, with a minimum term of 90 days, and were capped at 36 

percent APR. Underwriting requirements and pracesses were streamlined. 

12011 FDIC National Survey of Un banked and Underbanked Households (September 2012) at 6. 
174 


76120.115

In addition to offering small dollar loans, banks are offering products specifically designed to 

help the underserved improve their financial candition to a point where they are not reliant on 

other, more castly sources af short term credit. Banks have developed loons where the proceeds 

are deposited into an accaunt at the bank. The money never leaves the bank. Every month the 

payment is tronsferred automatically from the deposited money at the bank, to the loan 

account as a payment. Over the course of the year, a $500 loan may be paid oft and the loan is 

reported as "Paid Satisfactory" to the credit bureaus. The money is then able to be used at the 

discretion of the borrower, with the idea that they have now learned how to build wealth, and 

have a better credit rating in the process. The money can be used to payoff a pay day loan, and 

perhaps then the individual would qualify for a credit card which is considerably less costly than 

the pay day loan. 

-As the example above illustrates, unlike payday lenders, banks wi/! report credit history to the 

credit reporting agencies. This provides customers an opportunity to improve their credit history 

over time, making it easier for them to access a broader range of affordable credit products. 

Finally, state regulators have worked with regulated institutions who seek to make a concerted 

effort to reach more underbanked communities and individuals with the placement of branch 

locations, multi-lingual staff and materials, and community outreach. 

2) Millions of underserved consumers who lack adequate local credit alternatives are 

obtaining the credit they need, often at exorbitant prices, from unregulated 

offshore internet lenders. Given this, shouldn't we be focusing on ways to better 

provide credit options in Nebraska and other states, including access to internet 

loans from regulated, domestic lenders, especially given both the problems with 

rogue offshore operators and the growing trend of handling financial matters via 

the internet? 

Continuing to develap responsible ways of expanding credit availability is important. As your 

question notes, the ubiquity of the Internet cannot be ignored. In the area of financial services, 

the Internet has brought greater efficiency and flexibility, but it has also, in certain respects, 

created a new avenue for skirting the rules and avoiding accountability that is so necessary in 

providing financial services. As I testified during the hearing, certain states, including my home 

state of Nebraska, have identified this as a concern and have, accordingly, placed certain rules 

and restrictions on internet transactions. 

3) In your testimony, you state that Congress has only established federal charters 

when there is a compelling public purpose. The current economic climate, the 

sustained high unemployment, and the housing crisis have only made things 

harder on underserved communities and families. Recent studies have shown that 

more and more families are living paycheck to paycheck. In June, the Federal 

Reserve said the growing credit divide is one of the biggest factors in our slow 

2 
175 


76120.116

recovery. Do you not agree that the need for affordable, safe credit, especially in 

this climate, is a compelling public purpose? 

I agree that the need for affordable, safe credit is a challenge for policy makers. However, this is 

a complex problem driven by multiple factors, and I do not believe that a federal charter that 

undermines state authority is the right solution. The current economic environment and slow 

recovery has made managing personal finances more challenging for many families. However, 

in these cases, this is not solely or necessarily an access to credit problem. This is a problem 

with the economy. Greater access to credit for people living paycheck to paycheck might only 

increase the harm to consumers and generate more consumer protection issues. 

I and my fellow state banking commissioners would welcome the opportunity to work with 

Congress, federal regulators, and other stakeholders to identify and implement appropriate 

solutions. 

3 
176 


76120.117

Questions for The Honorable John Munn, Director, Banking and Finance, State of Nebraska 

Department of Banking and Finance, on behalf of the Conference of State Bank Supervisors 

1) Do you believe that there is a large number of underserved consumers in Nebraska 

who need, but are unable to obtain, small, unsecured personal loans from 

traditional banking institutions and who lack adequate credit alternatives? Is so, 

why are banks generally not making such loans, and why are other adequate 

alternatives not available from nonbank lenders? 

Our Department conducts consumer outreach and education throughout the state and I, as 

Director of the Department, spend a great deal of my time meeting with regulated entities and 

other stakeholders throughout the state. From these activities, I know that there are 

underserved consumers in Nebraska. However, with 281 bonks and credit unions in the state 

(including close to 200 state-chartered bonks and credit unions) and 524 non-bank lenders 

(including payday lenders, check cashing companies, installments lenders, sales finance 

companies, and mortgage lenders), Nebraska has a diverse range of lenders to meet the needs 

of the state's 1.8 million residents. 

Cansumers in Nebraska have access to praducts similar ta those that are covered by H.R. 6139. 

However, policy makers in Nebraska have determined that certain protections are needed to 

help ensure that such products are not prone to abuse and that borrowers are nat set up for 

failure. Specifically, as I testified, payday loans are limited to no more than $500, cannot exceed 

34 days in loan term, cannot have fees in excess of $15 per $100, and borrowers are limited to 

no more than two outstanding loans at a time, with no rollovers. 

Poor credit histories and/or a lack of credit history can be one reason that these consumers have 

limited access to sustainable credit. However, institutions that my department supervises are 

aware of this need and have sought to expand such lending. As I mentioned in my testimony, 

several credit unions in Nebraska offer a "QuickCash" product, which is small-dol/ar loan 

product, with a maximum APR of 18%, 60 days to payoff the loan, no prepayment penalty and 

no credit report required to qualify. 

2) What types of small, short-term loan products are available from bank and 

nonbank lenders to underserved consumers in Nebraska? Please advise as to how 

many of each category of lenders are licensed to make each type of loan, and what 

applicable limitations or requirements apply to the term of such loans as well as 

the total number and dollar volume for each such category of loans broken down 

by whether the loan was made by a bank or nonbank lender. Please note what 

limitations, if any, apply to making such loans via the Internet. Please also advise 

as to the percentage of underserved consumers who are now using offshore 

lenders. Please have CSBS provide the Subcommittee with the same type data 

requested for other states. 

4 
177 


76120.118

The availability of small, short-term loan products in Nebraska is generolly a function of 

qualification. In rural Nebraska, where personal lending is most often delivered by community 

banks and credit unions, the qualification is usually that of "being known" in the community. In 

these situations, credit bureau reports are often not a good source of information on an 

applicant's creditworthiness. The difficulty of "being known" in Nebraska's larger communities 

is a primary reason that most of the payday lenders we license are located in more heavily 

populated areas of the state. For lenders other than payday lenders in these areas, more 

reliance can be placed upon an applicant's credit report. 

It would be extremely difficult to aggregate personal loan data for Nebraska because, in 

addition to the numbers of institutions reported in response to your first question, many banks 

operate in Nebraska under charter from other states (e.g., Bank of the West) or as branches of a 

national banks chartered outside of Nebraska (e.g., Wells Fargo Bank, NA). As ta the term of 

loons, Nebraska payday loans may not exceed 34 days; longer personal loon terms are 

commonly available. I cannot think of a method for identifying cansumers who are now using 

offshare lenders, underserved or otherwise. The only time that we are aware of this activity is 

when a Nebraskan complains to us that their identity was stalen in the process of using the 

Internet to connect to an offshare lender or if an offshore lender continues to charge a 

Nebraskan's checking account electronically after a payday loan is repaid in full. 

Neither I, my department, nor CSBS has a 50-state database with the state-specific information 

for other states. While it does not fully answer your question, I am attaching on excerpt from 

the CSBS Profile of State-Chartered Banking, which provides some information abaut the types 

of non-bank lenders licensed by the various states. CSBS stoff would be happy to work with you 

and your stoff to help gather the data requested. please contact Margaret Liu (mliu@csbs.orq; 

202. 728. 5749) at CSBS if you or your staff would like to work together on gathering this 

information. 

3) In their respective testimonies, OCC and the Center for Responsible Lending 

essentially say that short-term, small-dollar products are inherently abusive and 

should not be allowed to be offered to underserved consumers. Does CSBS agree 

with this statement? 

As on organization, the Conference of State Bonk Supervisors has not token a position on 

whether short-term, small-dollar products are abusive or whether such products should be 

offered to underserve consumers. Various states, through their elected legislatures, have mode 

decisions about whether and how such products should be mode available within those states. 

State regulators, including CSBS members, are then responsible for implementing and enforcing 

those state requirements. CSBS believes that this decision making should remain at the state 

level. 

4) You have stated the H.R. 6139 provides virtually no product limits and controls but 

the legislation contains significant ones, including the prohibition of loans with 

terms of 30 days or less and ability-to-repay and prepayment penalty provisions. 

5 
178 


76120.119

Do you recognize that this legislation gives DCC full regulatory authority over these 

federally-chartered nonbank lenders, including the power to approve all loan 

products, and also subjects the institutions to federal consumer financial 

protection laws and CFPB's full regulatory powers? 

The plain language af H.R. 6139 gives the acc regulatory authority over these federally 

chartered nonbank lenders. However, the product approval provisions - which effectively deem 

the product approved unless the acc takes affirmative action - provide little in the way of 

consumer protections. Regarding the question of H.R. 6139 and the CFPB, entities that might be 

eligible for this new proposed federal charter already are within the CFPB's jurisdiction. 

However, under current law, the CFPB's regulatory authority complements, without supplanting, 

existing state regulation and oversight. 

5) Your testimony expresses concerns that state and federal regulatory partnerships 

would be irreparably damaged by this legislation despite the fact that it includes a 

major role for states by providing state attorneys general investigative and 

enforcement power and preserves all of extensive enforcement authorities of 

state officials under federal consumer financial protection laws. The legislation 

also requires DCC to consult and coordinate activities with state officials, including 

state bank supervisors. How does his hamper state and federal regulatory 

partnerships, especially when CFPB enforces the extensive array of federal 

consumer financial protection laws and it has already established strong working 

relationships with state regulators? 

The bill undermines state authority and state-federal collaboration in several significant ways. 

First, companies chartered under this biff would be able to avail themselves of the same 

preemption to which national banks are entitled. Second, the biff explicitly preempts state laws 

such as licensing laws, which are a key means for states to hold such companies accountable for 

their business practices. Finally, the legal construct underpinning the CFPB is based on statefederal collaboration: in addition to providing that federal law provides a floor not a ceiling to 

state consumer protection, Title X of Dodd-Frank requires not just consultation and coordination 

with state regulators, but it reflects an overall recognition of the important role of state 

regulators in overseeing financial services providers in their states. 

6) Given your opposition to H.R. 6139, what solutions, if any, do you propose to 

ensure that Americans in need can quickly obtain an adequate variety of 

affordable credit alternatives? 

Our members work daify with their state-chartered and state-regulated financial institutions to 

explore means of expanding access to affordable credit. We recognize that community-based 

institutions are central to meeting the credit needs of local communities, and we are sensitive to 

the challenging business environment that such institutions, particularfy community banks, face 

currently. 

6 
179 


76120.120

To enhance these institutians' ability ta serve the credit needs of a broad segment of their 

communities, our institutions need a regulatory environment that supports such lending - an 

environment that balances regulation and comman sense and that encourages innovation and 

creativity, while still adhering ta robust safety and soundness and compliance regulatian. We 

wark constantly with our federal regulatory partners as well as our regulated institutions to 

achieve this balance. 

7 

76120.121

fIB CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part I 

76120.122

CONFERENCE OF STATE BANK SUPERVISORS Profile of StatE: Charte

Institutions Supervised ... Part I 

76120.123

e CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. 

N/A: Not Applicable. 

Institutions Supervised- Part I 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

IDoes not include the assets of one bank that voluntarily surrendered its license on 1/4/12 and 

did not submit a 12/31/2.011 call report. 

2Exdudes MIB 

3Includes $2,361,819 that represent assets of unit of commercial banks identified as 

international banking entities authorized to conduct banking business with foreign people only. 

4Represents total assets of international bank entities, including $2,361,819 that also are 

included in the commercial banks total assets. 

Profile of State charte

76120.124

ell CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part II 

76120.125

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part II 

76120.126

91 CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. 

N/A: Not Applicable. 

Institutions Supervised 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

Profile of State Charte

76120.127

6tI CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part III 

76120.128

81 CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Il')stitutions Supervised- Part III 

76120.129

8fB CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. N! A: Not Applicable. 

Institutions Supervised - Part III 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

lPrivate trust company 

Profile of State Charte

76120.130

III CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions -PartIV 

76120.131

8IB cONFERENCE OF S"fATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised- Part IV 

76120.132

CO'NFI!RI,Nc:e OF STATE BANK SUPERVISORS 

NR: Not Reported. 

NjA: Not Applicable. 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

lExamination Authority 

2DFI does not supervise all licensees under the holding company. 

3Assets of 2 companies not included as they were not found. 

4Includes traditional BHes and the parents of Industrial Banks, exempt under the BHe Act but 

BHes under State statutes. 

5Includes traditional BHes and Industrial Bank parent companies. 

Profile of State Charte

76120.133

OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part V 

76120.134

(II CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part V 

76120.135

15 CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. 

NjA: Not Applicable. 

Institutions Supervised - Part V 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

1 Registration Fee 

2Included in Licensed Lenders total 

Profile of State Charte

76120.136

CONFERENCE OF STATE BANK SUPERVISORS PTofile of State Charte

Institutions Supervised - Part VI 

76120.137

fBI CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part VI 

76120.138

CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. N/A: Not Applicable. 

Institutions Supervised- Part VI 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

lPawnshops are directly licensed and regulated by municipalities. However, the Division is 

responsible for approving each city and town's pawnbroker regulations, including the 

maximum interest rates. 

2Domestic Insurance Companies 167, Foreign Insurance Companies 1464, HMOs 24, BCBS of 

Michigan, Resident Agencies 6,979, Individual Resident Agents 54,120, Non-Resident Agencies 

8,595, Individual Non-Resident Agents 135,975, Solicitors 1,323, Resident Surplus Lines 

Agencies 136, Individual Resident Surplus Lines Agents 329, Adjusters for the Insured 270, 

Non-Resident Surplus Lines Agencies 466, Individual Non-Resident Surplus Lines Agents 

1,237, Third Party Administrators 390, Insurance Adjusters 9,257, Insurance Counselors 931 

3There are 1773 companies of which 644 are domestic. 

Profile of State Charter

76120.139

CONFERENCE OF STATE BANK SUPERVlSORS Profile of State Chiute

Institutions Supervised - Part VII 

76120.140

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised Part VII 

76120.141

CONFI,R!,NC;eOF STATE BANK supeRVIsORS 

NR: Not Reported. 

N/ A: Not Applicable. 

Institutipns Supervised-ParfVn 

The following state banking departments did not participate in this chart; Guam, New Mexico, 

Virgin Islands. 

lThe Department is not required to approve TSPs, so this figure is only an estimate based on 

information currently in our records. 

2Excludes Securities Representatives (88,528), Investment Advisor Firms (88), Investment 

Advisor Representatives (2,049) and Issuer Agents (34). 

3Supervised by the Securities Bureau, a division of the Department 

4Includes non-bank servicers only. 

5Affiliates of state-chartered institutions. 

Profile of State Charte

76120.142

8jJ CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions .... Par(VIII 

76120.143

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Chatte

Institutions Supervised - Part VIII 

76120.144

CONFERENCE OF STATE BANK SUPERVISORS 

Institutions Supervised- Part VIII 

NR: Not 

N/A: Not Applicable. 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

1ean reduce to $250,000 

2Check seller bond is $100,000. For a money transmitter, a corporate surety bond issued by a 

bonding company or insurance company authorized to do business in this state and approved 

by the Department must accompany an application for a money transmitter license, the bond 

is $50,000, with an additional principal sum of $5,000 for each location, in excess of one, up 

to a maximum aggregate of $250,000.00. 

Profile of State Charte

76120.145

CONFERENCE OF STATE BANK SUPERVISORS 

I!lsti.tutlc:ms Supervised3$lk minimum bond, max is $500k. Total Net Worth must be no less than $lk. 

4$500k net worth requirement 

sInciudes Regulated Lenders/Finance Companies (409) and Assignees (6). 

6Minimum $30,000 in liquid assets required for Consumer Finance Companies, Payday Lenders 

and Title Lenders. 

7Regulated & Industrial loan licensees 

8Check cashers are 617 companies in 1,284 locations. 

9Minimum Bond = $25,000; Net Worth Minimum $100,000 

lOIn Louisiana, Consumer Finance Companies are the same as Licensed Lenders. 

"Consumer Financial Services Licensees 16, Credit Card Licensees 2, Motor Vehicle Installment 

Sellers 1,661, Motor Vehicle Sales Finance Licensees 628, 1st Mortgage Brokers, Lenders, 

and Servicers 597, 2nd Mortgage Brokers, Lenders, and Servicers 218, Premium Finance 

Licensees 61, Mortgage Loan Originators 4,560 

l2$100M bond or audit. 

131ncluded in total for Licensed Lenders 

14The department is registering check cashers under a law that became effective 1/1/09. 

15Consumer Finance Companies are Consumer Discount Companies covered under the 

Consumer Discount Company Act (7 p.s. § 6201 et seq.). 

l6Consumer Discount Companies covered under the Consumer Discount Act (7P.S. § 6201 et 

seq.) must provide a $5M bond for each place of business. However, after a license has been 

held for three continuous years, such bond(s) shall not be renewed or refiled unless the 

Secretary of Banking has reason to believe such bond is necessary. 

17Registration Fee 

lSAnd a $1,000,000 net worth 

19Inciuded in money transmitters 

20Varies 21lncludes money transmitters, currency exchanges and check cashiers/payday lenders 

22$5,000 Bond/$5,000 Net Worth 

23$10,000 Bond for 1st location, then $5,000 each/$100,000 Net Worth. 

24$25,000 Bond/$10,000 Net Worth 

Profile of State Charte

76120.146

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part IX 

76120.147

till CONfERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part IX 

76120.148

8:iS,CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. 

N/A: Not Applicable. 

Institutions Supervised - Part IX 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

lState law authorizing payday lending expired on July 1, 2010. 

2Start-up requirements vary depending on type of lender. 

3Department has prohibition laws on payday lending. 

Profile of State Charte

76120.149

CONFERENCE OF STATE BANK SUPERVISORS 

Institutions Supervised - Part XX 

4Ucensed Mortgage Brokers/Lenders excluding Mortgage Originators, 

5Mortgage banker licensees 

6In Louisiana, Licensed Lenders are the same as Consumer Finance Companies. 

7943 Payday Lenders are also Consumer Finance Companies (or Licensed Lenders) and 

included in 1,808 licensees. 

8Includes Payday and Title Lenders 

9Licensed Lenders, include Installment Sellers and Sales Finance Companies, which are 

covered under the Motor Vehicle Sales Finance Act (63 P5 § 24 et seq). 

1DPremium Finance Companies 

l1Refer to Title Lenders 

12Registration Fee 

13Payday lenders can be licensed in Vermont as a licensed lender but would have to observe 

the state's usury ceilings of a maximum of 18%. None have applied as of December 2011. 

Payday lenders would also have to observe Vermont's money servicers/check casher law 

which states "No licensee shall agree to hold a payment instrument for later deposit. No 

licensee shall cash or advance any money on a postdated payment instrument:' 

14Mortgage Lenders 1sIf annual originations are between $0 and $3MM, minimum bond is $100,000. If annual 

originations are between $3MM and $10MM, minimum bond is $150,000. If annual 

originations are over $10MM, minimum bond is $250,000, If Lender acts only as a Servicer, 

minimum bond is $200,000. A bond of $25,000 is required for each additional licensed 

location. 

15$5,000 Bond per location/$50,000 Net Worth 

Profile of State Charte

76120.150

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part X 

76120.151

f:Ij CONFERENCE OF STATE BANK SUPERVISORS Profile of state Charte

Institutions Supervised - Part X 

76120.152

81 CONFERENCE OF STATE BANK SUPERVISORS 

NR: Not Reported. 

N/A: Not Applicable. 

Institutions Supervised - Part X 

The following state banking departments did not participate in this chart: Guam, New Mexico, 

Virgin Islands. 

'Business and Industrial Development Corporations 

2Susiness and Industrial Development Corporation and Uninsured Bank 

3Mortgage Lenders and Brokers: 662; Mortgage Loan Originators: 1,341 

Profile of State Charte

76120.153

CONFERENCE OF STATE BANK SUPERVISORS 

48 - Escrow depositories; 67 - Mortgage servicers; 133 - Mortgage loan originator companies 

(MLOCs); 803 - Mortgage loan originators (Number does not include MLOC branches) 

5Escrow Depositories $50k net worth requirement; $100k escrow depository bond 

requirement. Mortgage servicers -No net worth or bonding requirements; MLOs and MLOCs -

No net worth or bonding requirements. 

6Surety Bond 

7Indudes Investment Advisors Firms as defined by the Idaho Uniform Securities Act of 2004, 

Section 30-14-202, subsection 15. 

"Includes Collection Agencies (641), Credit Repair Companies (9), Debt Buyers (97), and 

Endowed Cemeteries (12). Excludes Collection Agents (43,426). 

9Check Printers, Sellers or Distributors (13) are required to post surety bond of no less than 

$10,000 (205 ILCS 690/25). Non-Financial holders of Automated Teller Machines (764) are 

required to register with the Department, but are not required to post any Bond or pay fees. 

lODebt Management Companies 

11Includes 252 First Lien Mortgage Lenders and 83 Subordinate Lien Mortgage Lenders. 

12Mortgage banker registrants-86; mortgage loan orlginators-l,497; closing agents-67 

13lncludes 1,760 Notification Filers (Consumer Credit Sellers), 12 Bond for Deed Escrow Agents 

[$10,000 bond or $25,000 NW required], 73 Repossession Agents, and 12 Repossession 

Agencies [$1,000,000 bond required]. The department also regulates consumer loan brokers, 

but doesn't currently have any licensed. 

14Debt collectors & third party servicers 

15Investment Advisors 11,500, Securities Agents 132.000, Debt Management Companies 40, 

Living Care Facilities 40, BID COs 2 

16Motor Vehicle Sales Finance-181; Insurance Premium Finance-51; Consumer Loan Brokers19 

17Consumer Loan Brokers 

18Credit Repair - License 

19Investment advisors, supervised by the Securities Bureau 

2oBond or Net Worth requirement 

Profile of State Charte

76120.154

eJi1 CONFERENCE OF STATE BANK SUPERVISORS 

21Collection Agencies 

22Credit Counselors are institutions covered under the Debt Management Services Act (63 P.S. 

§ 24 et seq.). 

23Debt Management Services Companies must maintain a bond in an amount greater than the 

total amount of Pennsylvania consumer funds that the institution holds directly or in trust at 

any time. 

240thers include Collector Repossessors licensed under the Motor Vehicle Sales Finance Act (69 

P.S.§ 601 et seq.). 

25Loan Brokers 

Broker- min. bond $90,000; Mortgage Lenders- min bond $200,000; Mortgage 

Servicers- min. bond $200,000 

27Mortgage Servicers 

28Registration/Nr--1LS Licensing Fee 

29SBA (7A) Lender and Business Development Co 

30Mortgage Brokers (89) and Mortgage Loan Originators (1,159) 

31If annual brokered loans are between $0 and $3MM, minimum bond is $50,000. If annual 

broke red loans are between $3MM and $10MM, minimum bond is $75,000. If annual 

brokered loans are over $10MM, minimum bond is $100,000. If broker table funds, minimum 

bond is $150,000. 

3lInciudes 239 collection agencies and 30 insurance premium finance companies 

33Includes No Bond/$10,OOO Net Worth (insurance premium Finance companies) Includes Bond 

starting at 25,000 in-state and 35,000 out-of-state/NW 15,000 (collection agencies) 

Profile of State Charte

76120.155

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part XI 

76120.156

CONFERENCE OF STATE BANK SUPERVISORS Profile of State Charte

Institutions Supervised - Part XI 

76120.157

o 

Hrr.:iI';'WH: Hbif;i'm[ 

NR: Not Reported. 

N/ A: Not Applicable. 

Siupell'Vii5lE1ld priiJ!1I1 XI 

The following state banking departments did not participate in this chart: Guam, New ("lexiCa, 

Virgin Islands. 

lForeign Banking Organizations 

2Non'depository trust only banks. 

JAlso included in Banker's Banks total 

4Deposits are backed by the full faith and credit of the state of North Dakota 

5Data is stored offsite 

6Building & Loan Association 

7The division regulates three nondeposltory trust companies 

r'i"ii:,ij,j:ir :u'r ,ii:f:m:!;i!;