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AN EXAMINATION OF THE AVAILABILITY 

OF CREDIT FOR CONSUMERS 

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 

FIRST SESSION 

SEPTEMBER 22, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–65 

( 

(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 

LARRY C. LAVENDER, Chief of Staff 

(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: 

September 22, 2011 .......................................................................................... 1 

Appendix: 

September 22, 2011 .......................................................................................... 65 

WITNESSES 

THURSDAY, SEPTEMBER 22, 2011 

Gilbert, Ryan, Chief Executive Officer, BillFloat, Inc. ......................................... 42 

Grant, Michael A., President, National Bankers Association .............................. 44 

Guzman, Gerri, Executive Director, Consumer Rights Coalition (CRC) ............. 38 

Koide, Melissa, Vice President of Policy, Center for Financial Services Innovation (CFSI) ............................................................................................................ 40 

Manturuk, Kimberly R., Research Associate, University of North Carolina 

Center for Community Capital ........................................................................... 46 

Marquis, David M., Executive Director, National Credit Union Administration 

(NCUA) ................................................................................................................. 11 

Mooney, Robert W., Deputy Director, Consumer Protection and Community 

Affairs, Federal Deposit Insurance Corporation (FDIC) ................................... 9 

Rademacher, Ida, Vice President, Policy and Research, the Corporation for 

Enterprise Development (CFED) ........................................................................ 48 

Wides, Barry, Deputy Comptroller for Community Affairs, Office of the Comptroller of the Currency (OCC) ............................................................................. 7 

APPENDIX 

Prepared statements: 

Gilbert, Ryan ..................................................................................................... 66 

Grant, Michael A. ............................................................................................. 70 

Guzman, Gerri .................................................................................................. 72 

Koide, Melissa ................................................................................................... 74 

Manturuk, Kimberly R. .................................................................................... 82 

Marquis, David M. ............................................................................................ 116 

Mooney, Robert W. ........................................................................................... 139 

Rademacher, Ida ............................................................................................... 151 

Wides, Barry ..................................................................................................... 156 

(1) 

AN EXAMINATION OF THE AVAILABILITY 

OF CREDIT FOR CONSUMERS 

Thursday, September 22, 2011 

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 9:31 a.m., in room 

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

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Royce, 

McHenry, Pearce, Westmoreland, Luetkemeyer, Huizenga, 

Canseco, Grimm, Fincher; Maloney, Gutierrez, Watt, Hinojosa, 

McCarthy of New York, Baca, Miller of North Carolina, Scott, 

Meeks, and Carney. 

Chairwoman CAPITO. This hearing will come to order. Close the 

doors there. 

I would like to thank the Members for being cooperative and the 

witnesses for starting early this morning. The Oversight and Investigations Subcommittee has a very important hearing in this room 

at 2 p.m., and we need to move through this hearing as expeditiously as possible so that they can have enough time to complete 

their hearing. 

We are also likely to have a series of votes around 1 p.m., and 

it is my intention to try to wrap up the hearing when those votes 

are called. That said, I would like to remind Members to try to 

abide by the 5-minute rule when questioning witnesses so all Members will have sufficient time to ask questions. 

The financial crisis and economic downturn have left many 

Americans with fewer financial resources. Furthermore, some 

Americans have lost their jobs and suffered significant reductions 

in their standard of living. Many have exhausted their savings and 

are now seeking new financial products to help them get through 

these difficult times. 

While many of us will weather the storm and regain our financial footing, those who have struggled may have fallen out of the 

banking system or are teetering on the edge. Today’s hearing will 

give members of the Financial Institutions and Consumer Credit 

Subcommittee a better understanding of the ongoing innovation of 

financial products to meet the demand for credit. 

Our first panel of regulator witnesses will provide us with an assessment of programs that financial institutions offer for borrowers 

seeking lower-dollar loans. Our second panel will provide members 

2 

of the subcommittee with an overview of entrepreneurship and innovation in dealing with new financial products as well as the necessary safeguards to make sure that these products are safe for the 

consumer. 

We need to foster innovation in the creation of new financial 

products to meet our consumers’ needs. There should be diverse 

product offerings for consumers so that they can best tailor the 

products to their needs. 

This product expansion is critical to consumers’ ability to gain— 

to regain, in some cases—and maintain financial stability and to 

access the credit products they need. It is my hope that this hearing will provide Members with the information necessary to make 

informed decisions about ways to expand credit availability for the 

underserved. 

I would like to now recognize the ranking member, the 

gentlelady from New York, Mrs. Maloney, for the purpose of making an opening statement. 

We experienced some technical difficulties at the beginning 

of Mrs. Maloney’s statement.] 

Mrs. MALONEY. —particularly not only from government in the 

first panel, but the second panel, on many in the private sector 

that are exploring short-term credit options and other ways to provide credit to the underbanked. According to a recent study, this 

segment is approximately 55 million people, or 24 percent of all 

households in America, and this population has grown by approximately 12 percent over the last 4 years, in large part due to the 

economic crisis. 

Even those who do have checking accounts at traditional banks 

often face credit challenges. In fact, research from the Bureau of 

Economic Research tells us in their recent report—I find this an 

astonishing statistic—that about half of all Americans would not be 

able to come up with $2,000 in 30 days for emergencies. I would 

say this is, then, an emergency that government faces. 

Whether they use payday lenders, check cashers, or simply seek 

to borrow money from their friends and families, these consumers 

tend to feel that their banks can’t provide them with the money 

they need to fill the financial void that they face. And in many 

cases, banks are not willing to give this type of loan to a customer. 

So they seek services outside of their banks, where there is often 

a greater likelihood of predatory practices. 

We know that the population of people seeking these types of 

short-term credit products is growing in this uncertain economy, 

where the unemployment rate has been over 9 percent for some 

time. I have always supported consumer choice, whether it be in 

the area of credit cards, overdraft protection, check cashers, or any 

other form of short-term loans. I believe that as long as the prices 

are clear, the risks are clear, and that consumers are on a level 

playing field with their financial institutions, then they should be 

empowered to make decisions about their finances that are right 

for them and their families. 

I was very happy to learn about the National Credit Union Administration’s short-term loan product for credit unions, and that 

the FDIC pilot project enabled a small number of banks to offer a 

3 

low-dollar loan product. This is important that you are looking in 

these directions. 

But the problem is that consumers say the reason they seek a 

short-term loan as opposed to a loan from their bank is because the 

payday loan, or the check cash, or whatever it is, is fast and easy 

to obtain, and often these loans do not require a credit check. 

I look forward to hearing from the regulators on our first panel 

whether they think the loan products that their banks offer could 

be a viable alternative. I also would like to hear from them what 

they are doing for check cashers, because many are telling me that 

they can’t get any cooperation from a bank. I know that in the 

great State of New York, there is only one bank that will cooperate 

with check cashers, and—even though they will check the credit of 

the people and ensure the credit of the people they are looking at. 

I really do feel that this is a huge, huge problem. There are 

many unbanked and underbanked citizens in our country, and we 

need to figure out how we can help them become banked, either 

through an alternative low-term project in the government, in the 

government banks—or the government-regulated banks—or in the 

other alternative areas. 

And I would like to raise to the OCC, these alternative areas are 

not regulated. Maybe the OCC should regulate this area too, or 

what are your ideas of how this should be approached? 

In any event, I compliment the chairwoman for focusing on this. 

Regrettably, it is a growing problem in our country. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Westmoreland for 1 minute for an 

opening statement. 

[Technical difficulties.] 

Mr. WESTMORELAND. —for this hearing, and despite the Administration’s assurances that 2010 would be a recovery summer, consumers are still struggling to gain access to credit. This is particularly true in Georgia, where the proliferation of bank failures and 

burdensome regulations from this Administration further hindered 

bank’s abilities to lend to creditworthy borrowers. 

Now, banks are expanding to offer nontraditional financial products to consumers because regulations have increased costs and 

limited banks’ ability to charge customers for these services. I am 

especially concerned about Federal regulators regulating profit over 

regulating the product. This is particularly true of recent OCC 

guidance, issued June 8, 2011. 

And I look forward, Madam Chairwoman, to hearing the testimony today from these witnesses. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Gutierrez for 3 minutes for an opening statement. 

Mr. GUTIERREZ. Thank you very much. 

And I want to thank you and the ranking member. I support the 

work these regulatory agencies are doing to encourage banks to 

offer safe and sensible loan products to underserved borrowers. 

I am also interested in innovations and really helping families 

get out of the debt cycles and build good credit. I consider this a 

very important issue, and one for which I want to explore solutions, 

4 

and how will we address the potential abuses that exist just before 

us? 

Big banks—the same banks that we bailed out—are not offering 

products that look very familiar to anyone looking at them and 

fighting abusive and predatory lending practices. Wells Fargo—I 

just got this from the Internet—Wells Fargo has something called 

‘‘direct deposit advance,’’ and U.S. Bank has ‘‘checking account advance.’’ 

While these offers may sound interesting and pretty innocent, 

they may not be all they seem to be. They are charging fees and 

interest rates that work out to almost 120 percent APR or more, 

and that looks pretty much like a payday loan to me. 

They are writing terms that they say can take their payout 

straight from their next direct deposit. Sounds like a payday loan 

to me. 

And guess what? If you can’t pay it off at the end of the month, 

they are going to go to your account and debit your account, and 

if the money doesn’t exist, you get an overdraft fee from U.S. Bank 

and Wells Fargo. 

I don’t know about the rest of you, but I am paying attention, 

because I thought the payday industry was the ugly little brother 

duckling that the big banks always frowned upon. But it appears 

that after we bailed them out, and they took us to the brink of disaster that is exactly where they want to take many of their customers today. 

I hope we check into these products and use enforceable standards created by a new consumer protection agency, which I hope 

we stop tying the hands of. 

Thank you so much. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Luetkemeyer for 21⁄2 minutes for an 

opening statement. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

As unemployment hovers above 9 percent, and the economy remains stagnant, the American people continue to suffer. Traditional financial institutions are facing a sizeable wave of new regulations and have, in some cases, turned to increased fees to help 

weather the financial storm. 

Regardless of who or what is to blame, the simple truth is that 

some low- and middle-income Americans are being forced out of depository institutions. They are more frequently turning to alternative sources of capital. 

Twenty-five percent of American households have difficulty obtaining credit from traditional sources, and 55 percent of our citizens have trouble pulling together $2,000 to deal with an emergency. We seem to continue to work against the non-depository institutions despite the fact that they are regulated, have high customer satisfaction, and serve a population that others are not interested in or able to serve. 

If we want to get serious about helping those with limited access 

to credit, we need to consider novel concepts that include a wide 

variety of institutions. We are beginning to do this, but must continue to make progress. To take the FDIC’s small-dollar loan pilot 

5 

program, this is just one example of a new initiative that could ultimately lead to wider access to credit. 

Most institutions that have participated have viewed it—some of 

them have viewed it as a success, and did so because it gave them 

an opportunity to build relationships with customers. Without that 

connection, financial institutions have no reason to do a small-dollar, short-term loan that might be needed to pay a medical bill or 

a car payment that allows the American public to get well, get educated, or get back to work. 

We can improve upon this program by consenting to the formation of partnerships between banks and non-banks, which I believe 

would encourage increased access to credit and stronger consumer 

protections. The economy isn’t improving. Our constituents continue to suffer. 

It is time for our government to work together and identify innovative ways to foster cooperation and advance this conversation. 

Hopefully, today’s hearing will provide a forum to do just that. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Baca for 2 minutes for the purpose 

of an opening statement. 

Mr. BACA. Thank you very much, Madam Chairwoman, and anchor for our third-base team, as well as our ranking member, as 

well. 

Today, we are here to discuss the credit crisis and how it impacts 

the unbanked and underbanked population in this country. With 

all the attention the near-collapse of Wall Street received, relatively little attention has been given to the population of minority 

and underbanked and unbanked communities. 

These individuals and families are struggling with high unemployment and limited options as to where to go for credit. 

A recent study by the National Bureau of Economic Research 

found that one quarter of Americans would be unable to come up 

with $2,000 in 30 days if they had financial emergencies. So, you 

have to put yourself in that kind of a situation. 

Another 19 percent would have to rely on short-term credit products in order to come up with the cash. This population is no longer 

just the poor. It is the middle-class families fighting to pay their 

bills, mortgages, and educational costs for their kids, and knowing 

that they need a $2,000 loan and can’t get it anywhere else. 

Today’s banks are not serving the underserved consumers and 

are not supporting the innovation that we need in the market. In 

this situation, where can these individuals go? Some Members may 

choose to focus on the subset of the short-term loans—payday 

loans, what they feel are the danger of this product. 

But payday loan providers do not offer $2,000 loans. It would be 

a disservice to the people in need of credit to focus on these products alone. 

If close to half of Americans cannot come up with $2,000 on their 

own in 30 days, the problem is much bigger than just payday loans. 

We need to discuss short-term products and how they can help. 

We need to create an environment for safe but effective financial 

innovation that at the end will provide more access to people who 

6 

need it. This year, I have introduced H.R. 1909, the Federal Financial Services and Credit Companies Charter Act of 2011. 

Chairwoman CAPITO. The gentleman’s time— 

Mr. BACA. May I have 30 seconds? 

Thank you very much, Coach. 

The goal of the legislation is to provide access to short-term products and safe, transparent—instead of reinventing the wheel, the 

bills work with what we have. Let us create Federal charter incorporated products. I realize that we have a lot to discuss and I look 

forward to hearing the testimony of the individuals today, and 

hopefully they will consider my bill, as well, in that, and that is 

the FFSCC Charter Act. 

Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Canseco, for 1 minute for an opening statement. 

Mr. CANSECO. Thank you, Chairwoman Capito, for holding this 

meeting. 

Federal Reserve Chairman Ben Bernanke has as much as said 

that credit is the lifeblood of our economy. And based on a recent 

FDIC survey which shows millions of American families are unable 

and limited in their ability to access credit, and to quote my colleague, Mrs. Maloney, who stated and quoted the National Bureau 

of Economic Research that found that half of American families 

could not raise $2,000 in an emergency if they needed to. 

This is truly a daunting problem that threatens the future of 

American prosperity. To correct this, Congress should focus on fostering a vibrant and competitive financial services industry—one 

that provides ample choices for consumers and allows borrowers 

mobility from one type of lending product to the next. 

Unfortunately, the recent legislation and the hundreds of regulations that they mandate will restrict credit to even more and more 

Americans and disallow low- and moderate-income families access 

to traditional banking systems and other sources of credit. I look 

forward to hearing the testimony of the witnesses today. 

Thank you, and I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Scott for 2 minutes for an opening 

statement. 

Mr. SCOTT. Thank you very much, Madam Chairwoman. 

I think the statistics point out clearly this great need. Right now, 

only 17 percent of banks consider it a priority to really get into the 

communities and serve the unbanked areas. 

We are now in a very difficult economic time, with soaring unemployment. These unbanked individuals are not generally financially 

irresponsible. For example, there are those who have been unemployed for at least 4 months and are looking for work, and they 

have dried up their savings; there are those who are young adults 

who have limited access to liquidity due to various circumstances 

but realize the value in saving money where possible—they need 

access to credit. 

Additionally, there are those who receive an hourly wage from 

often more than one job, who are just trying to hold on and find 

steady employment, with the economy hovering at 10 percent unemployment—and that is being very generous when you count 

7 

those who have given up work. So we have an opportunity here. 

We have a responsibility to make sure we have a fair, level playing 

field. 

One size does not fit all. There is room for payday lenders; there 

is room for small industrial loan companies; there is room for pawn 

shops. All play a very vital role. 

And as we move forward with regulations we have to make sure 

that the one thing that is paramount is that our consumers deserve 

choices that fit their very serious economic circumstances at this 

time. 

With that, Madam Chairwoman, I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Fincher for 1 minute for the purpose of an opening statement. 

Mr. FINCHER. Thank you, Madam Chairwoman. 

The poor state of this economy is hurting those the most who 

have the least. In an era of 9.1 percent unemployment, access to 

credit is tighter than it has ever been. 

However, in my home State of Tennessee, there is a way to get 

credit that requires no credit score and has provided thousands of 

Tennesseans with funds to pay for emergencies and life’s other 

problems. These lenders in Tennessee have satisfied a unique demand in the marketplace that banks and other financial institutions cannot fill. 

Low-dollar lenders provide short-term, low-dollar loans, far below 

the amount that a person can borrow from the bank without a 

credit check. These loans offer another immediate option to many 

consumers who have low credit or no credit at all. 

I look forward to hearing the testimony today from the witnesses, 

and I yield back. 

Thank you. 

Chairwoman CAPITO. Thank you. 

I would like to thank the Members for their opening statements, 

and now I would like to introduce our first panel of witnesses for 

the purpose of giving a 5-minute opening statement. 

We have your written testimony. 

Our first witness is Mr. Barry Wides, Deputy Comptroller for 

Community Affairs, Office of the Comptroller of the Currency. 

Welcome, Mr. Wides. 

STATEMENT OF BARRY WIDES, DEPUTY COMPTROLLER FOR 

COMMUNITY AFFAIRS, OFFICE OF THE COMPTROLLER OF 

THE CURRENCY (OCC) 

Mr. WIDES. Chairwoman Capito, Ranking Member Maloney, and 

members of the subcommittee, I appreciate the opportunity to appear on OCC’s behalf to discuss consumer credit and the types of 

products that national banks and Federal savings associations are 

making available to meet small-dollar credit needs. 

National banks and Federal savings associations provide the 

lion’s share of unsecured consumer lending in the United States, 

with over $600 billion in credit card and other revolving debt outstanding. Consumer credit comes in many forms: unsecured and secured credit cards; term consumer installment loans; and lines of 

credit linked to checking accounts. 

8 

Many banks and thrifts offer credit cards that provide households with a crucial source of credit and a flexible repayment 

schedule. Lines of credit which are widely offered are frequently 

tied to checking accounts and can be set up automatically transfer 

funds to cover overdrafts. Most banks and thrifts also have unsecured consumer loan products, where the borrower makes installment payments over a set period of time. 

But there are many factors that may limit a borrower’s access to 

traditional types of credit. Some prospective borrowers may have 

yet to establish a credit history or may only have a limited credit 

record. 

For other prospective borrowers, previous late payments, repossession action, bankruptcy, or foreclosure may have damaged their 

credit score. And some consumers are just unaware that the better 

credit products for which they would qualify are available. 

However, a growing number of banks and thrifts recognize that 

there are ways for these customer segments to be underwritten 

safely and soundly. And many banks and thrifts have taken initiatives to provide products tailored to the needs of these customers. 

My written testimony highlights examples of small-dollar loan 

products offered by banks and thrifts and shows that much is being 

done to improve access to credit. Many banks and thrifts use hightouch manual underwriting when making a loan decision, which allows them to consider mitigating circumstances such as temporary 

unemployment or emergency medical expenses. This approach is 

prudent as long as the customer has otherwise managed credit and 

has the capacity to repay the loan. 

Other banks offer products such as secured credit cards to help 

borrowers reestablish or improve their credit. And new scoring 

models are helping to automate underwriting for thin-file customers. This not only lowers costs for low-margin small loans, but 

also allows rapid decisioning and expedited disbursement of funds. 

The bank regulatory agencies’ Community Reinvestment Act 

guidelines specifically acknowledges the importance of small-dollar 

loans as a means of serving the credit needs of the community. Programs that provide small, unsecured consumer loans based on the 

borrower’s ability to repay and with reasonable terms are eligible 

for positive CRA consideration. 

Loan programs that feature reporting to consumer reporting 

agencies or include a financial education component also may be favorably considered. And banks and thrifts may receive positive 

CRA consideration for qualified investments in financial intermediaries that offer small-dollar programs. 

The OCC’s community affairs staff engage in a variety of activities to encourage nationally chartered banks and thrifts to address 

consumer credit needs. We educate by communicating best practices through online resources and publications. We also work with 

the other bank regulatory agencies to conduct dozens of seminars 

each year where bankers hear firsthand from practitioners about 

how best to implement constructive programs, such as small-dollar 

loan initiatives. 

The OCC works actively in partnership with the National League 

of Cities Bank On initiative to expand banking opportunities for 

unbanked and underbanked individuals. Under this initiative, 

9 

banks and thrifts are offering low-cost checking with no minimum 

balance requirements, prepaid debit cards, and small-dollar loans 

with the support of counseling organizations who provide budgeting 

and financial counseling assistance. 

I would like to conclude by reemphasizing that the OCC firmly 

supports efforts by national banks and Federal savings associations 

to be leaders in their communities. The OCC’s guidance and supervision encourages our regulated institutions to offer products and 

programs that meet a spectrum of credit needs in a safe, sound, 

and sustainable manner. 

Thank you for the opportunity to appear before you today, and 

I look forward to your questions. 

[The prepared statement of Deputy Comptroller Wides can be 

found on page 156 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Robert Mooney, the Deputy Director for 

Consumer Protection and Community Affairs at the Federal Deposit Insurance Corporation. 

Welcome, Mr. Mooney. 

STATEMENT OF ROBERT W. MOONEY, DEPUTY DIRECTOR, 

CONSUMER PROTECTION AND COMMUNITY AFFAIRS, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) 

Mr. MOONEY. Thank you for inviting me to testify on options 

available to consumers in need of small-dollar, short-term credit. 

Expanding the availability of mainstream financial services in general, and affordable small-dollar loans in particular, is a priority at 

the FDIC. 

A generation or so ago, it was not uncommon for banks to make 

small, unsecured loans to individuals. However, over time a series 

of product and technological innovations in the competitive landscape of banking contributed to a decline in the number of banks 

offering small loans and an increase in alternative credit providers 

offering more costly credit products. 

The FDIC began reviewing whether banks could feasibly offer alternatives to high-cost, short-term credit in the context of military 

personnel, whose financial problems can collectively affect the readiness of our Armed Forces. In December 2006, we held a conference 

titled, ‘‘Affordable, Responsible Loans for the Military: Programs 

and Prototypes,’’ where attendees, including military banks, representatives from the Department of Defense, community groups, 

and others developed a template for an affordable, small-dollar loan 

program. 

In June of 2007, to encourage more banks to offer these loan 

products, the FDIC issued its Affordable Small-Dollar Loan Guidelines. The guidelines encourage affordable prices, reasonable loan 

terms, streamlined underwriting, and suggest linking a savings 

component and financial education to short-term loan products. 

In February 2008, the FDIC launched a 2-year small-dollar loan 

pilot program to determine the feasibility of banks offering smalldollar loans as an alternative to high-cost emergency credit such as 

payday loans or fee-based overdraft programs. The pilot concluded 

in 2009. Twenty-eight volunteer banks participated with total asVerDate Nov 24 2008 18:43 May 24, 2012 Jkt 072606 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\72606.TXT TERRIE
10 

sets ranging from $27 million to $10 billion, and with almost 450 

branches in 27 States. 

Banks made 34,400 loans with a principal balance of just over 

$40 million. While delinquencies on the loans tended to be higher 

than for unsecured consumer loans in general, charge-offs were in 

line with those other loans. 

The pilot has resulted in a model, or template, of product elements for a safe, affordable, and sustainable small-dollar loan. 

Product elements include loan amounts of $2,500 or less, loan 

terms of 90 days or more, APRs of 36 percent or less, and low or 

no fees. Elements also include streamlined but solid underwriting, 

and optional savings and financial education components. 

The template is simple and replicable. 

Most pilot bankers indicated that these loans were a useful business strategy for developing or retaining profitable, long-term relationships with customers. The most prominent product element 

bankers linked to the success of this program was a loan term 

longer than just a few pay cycles to give consumers time to repay 

the loan. And perhaps most importantly, the pilot shows that 

banks can offer affordable small-dollar loans in a manner that suits 

their business plans and is fair to consumers. 

Going forward, the FDIC is working with the banking industry 

and others to support strategies that expand the supply of smalldollar loans. These strategies include highlighting the successful 

features of the pilot and other small-dollar loan models, such as we 

are all doing here today; and encouraging broad-based partnerships 

among banks, nonprofits, and others to design and deliver smalldollar loans, including the use of new technologies and business 

models. 

The FDIC is also engaged in a number of related initiatives, such 

as our Model Safe Accounts pilot, where we hope to demonstrate 

affordable savings and transaction accounts; Money Smart, our 

comprehensive financial education curriculum; our Alliances for 

Economic Inclusion that we have in 14 markets around the country; and our unbanked and underbanked surveys and other consumer research. 

In conclusion, like all of us, underserved consumers need to cash 

their paychecks, pay bills, and save for the future with products 

that are safe, affordable, and easy to understand. They also need 

to access reasonably priced credit to buy a home or car, pay for 

their children’s education, and of particular relevance to this hearing, to meet unexpected short-term financial needs. 

The FDIC looks forward to the day when affordable small-dollar 

loans become a staple product at all banks, helping American families address their short-term credit needs in a safe, reliable, and financially sound manner. 

Thank you. 

[The prepared statement of Deputy Director Mooney can be 

found on page 139 of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Mooney. 

Our final witness on this panel is Mr. David Marquis, who is the 

executive director of the National Credit Union Administration. 

Welcome. 

11 

STATEMENT OF DAVID M. MARQUIS, EXECUTIVE DIRECTOR, 

NATIONAL CREDIT UNION ADMINISTRATION (NCUA) 

Mr. MARQUIS. Good morning, Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee. NCUA appreciates the invitation to testify about the availability of credit for the 

underbanked—that is, people who have a savings account but who 

also use alternative financial services. 

In recent years, credit unions have outperformed banks in lending overall. Between December 2007 and June of 2011, credit union 

loans have expanded by about 6 percent while credit contracted for 

the rest of the economy. 

Of note, low-income credit unions, which focus on providing services to individuals in communities more likely to have underbanked 

populations, have performed even better. Lending at these particular institutions grew by about 14 percent. 

In passing the Federal Credit Union Act nearly 80 years ago, 

Congress decided that credit unions have a mission of meeting the 

credit and savings needs of consumers, especially people of modest 

means. NCUA therefore has considerable experience facilitating 

the ability of credit unions to meet the financial needs of the 

underbanked. 

NCUA works to help the underbanked obtain credit in three 

principal ways: by facilitating the availability of loan products; by 

expanding credit union access to members in underserved communities; and by offering assistance to credit unions focused on providing service to the underbanked. 

To facilitate the availability of credit for the underbanked, the 

NCUA finalized its small loan program last September. The rule 

provides a viable, consumer-friendly, lower-cost alternative for 

credit. With strong consumer protections, the rule balances increased risk and access to affordable, fully-amortized credit that is 

faster and easier to qualify for as compared to more traditional 

lending products. 

Since its introduction, the product has gained growing market acceptance and enhanced the availability of short-term credit. At the 

end of June, 343 Federal credit unions reported more than 33,000 

small loans averaging just over $412 each and just under 21 percent interest rates, which is significantly lower than the triple-digit 

interest rates often charged by payday lenders. 

To further expand credit union access to unbanked households, 

NCUA also revised its rules in June. These changes ease regulatory burdens on credit unions seeking lower-income credit union 

designation. 

Additionally, NCUA continues to promote access to credit by approving applications allowing credit unions to add underserved 

areas for their field of memberships. 

To provide additional assistance to credit unions, NCUA operates 

the Community Revolving Loan Fund. Congress created this fund 

to provide low-interest loans and grants to support low-income 

credit unions’ efforts like improving financial literacy, providing financial education, creating new products, and preventing foreclosures and expanding overall access to credit. 

In May, NCUA issued a proposed rule to eliminate outdated procedures and increase transparency. When finalized, NCUA anticiVerDate Nov 24 2008 18:43 May 24, 2012 Jkt 072606 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\72606.TXT TERRIE
12 

pates that the reduction of regulatory burden will increase loan demand and enhance the availability of basic financial service in lowincome communities. 

The committee has also requested ideas to increase the availability of sustainable, affordable credit options for underbanked 

households. In this regard, NCUA has several suggestions. 

First, current law only permits multiple common-bond credit 

unions to serve underserved areas. Allowing other types of credit 

unions to add underserved areas would promote improved access to 

basic financial services, loan products, and wealth-building opportunities. 

Second, Congress could permit credit unions to serve any adjacent geographic area meeting economically distressed criteria like 

poverty and unemployment without regard to CDFI fund’s more restrictive conditions than NCUA’s local community requirements. 

Finally, focusing more broadly on job creation and economic 

growth, the passage of the bipartisan Small Credit Union Lending 

Enactment Act, sponsored by Congressman Royce and Congresswoman McCarthy, would also increase access to credit. The bill 

would enable credit unions to prudently make safe, well-underwritten member business loans more frequently, supporting economic growth and job creation. 

If enacted, NCUA will act quickly to implement the strong safety 

and soundness regime called for in the bill by writing new rules 

and remaining vigilant in our supervision effort programs. 

In sum, NCUA recognizes the real need to expand access to credit for the underbanked. As a result, the agency has long sought to 

enhance the availability of credit, increase access to potential members, and assist credit unions. NCUA also stands to work with the 

committee on any future legislative efforts to increase access to 

credit. 

Thank you, again, for the opportunity to discuss these important 

issues. I look forward to your questions. 

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

116 of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

And I am going to go ahead and begin the questioning. 

My question is in relation to the interchange issue that we had 

earlier in the year on the debit and credit—or, it was the debit 

cards, and some of the push-back from the financial institutions 

was because of the loss of revenue in that area, that they were 

going to be eliminating some credit card rewards. But also, some, 

I think, have started to assess monthly charges for a banking account, a checking account with the financial institutions, and some 

people—the folks that we are talking about today are—my fear was 

that they would just drop out of the banking system because of 

the—you know $10 a month is a significant amount of money here. 

Are you finding with the institutions that you regulate that they 

are losing customers in this economic range and that maybe developing a short-term, low-dollar loan program is a way to get them 

back into the banking systems? Is that something that is working? 

Mr. WIDES. One of the banks that we actually highlighted in my 

testimony was KeyBank, in Cleveland, Ohio. They have actually, as 

a large bank, developed a very aggressive strategy for going after 

13 

the unbanked. They have check cashing within their branch locations; they offer remittance services; and as I mentioned in my testimony, they recently rolled out a small-dollar product for customers who didn’t qualify for the bank’s other unsecured credit 

products. And this credit product that they developed is geared toward individuals who have thin credit files or are reestablishing 

credit. 

And I would say that KeyBank is an example of a national bank 

that has actually developed a strategy to affirmatively go after this 

clientele, and they do offer the kinds of products that you mentioned, the low-cost products that provide a slimmed-down set of offerings for consumers. 

I can’t speak to the other question in terms of whether the interchange rules have or have not had an effect yet. But we do see 

promising signs of banks seeing the unbanked as a market that is 

worth going after. 

Mr. MOONEY. I would briefly add that in the FDIC’s survey of 

banks 2 years ago relative to their activities in underserved markets, banks that responded said that about 73 percent of those 

were aware of the increased demand in low- and moderate-income 

areas and underserved areas, and they considered that to be an important market. However, only 18 percent of those banks 

prioritized it as a market that they would go into, which is why the 

FDIC started Alliances for Economic Inclusion. In 14 different markets, we brought together banks, nonprofits, and public officials to 

talk about ways to reach into these underserved neighborhoods and 

develop products that are useful to them, including small-dollar 

loans. 

Our pilot program showed that the banks who found that loan 

program to be the most profitable were those that targeted lowand moderate-income areas, targeted the military—targeting the 

individuals who otherwise don’t have free and ready access to the 

financial system. 

Chairwoman CAPITO. In regards to your pilot program, the original participants in that program, are they still offering those— 

Mr. MOONEY. It is a good question. 

Chairwoman CAPITO. —products? 

Mr. MOONEY. We began with 31 banks that started the program. 

We ended the program 2 years later with 28 banks. Most of those 

banks, we believe, are still in the program; we haven’t surveyed 

them recently. 

But we are very encouraged by the fact that an additional 50 

banks who are members of our Alliances for Economic Inclusion 

have either started to offer a small-dollar loan program or are developing a program to initiate in the very near future. I was just 

at a meeting of military banks, and the military banks that were 

part of the program continue to offer the program and consider it 

very important. 

Chairwoman CAPITO. Let me ask a quick question, because I only 

have a little bit of time left. I have heard kind of veiled references 

to qualify, qualify, qualify. How does a person qualify? Is it your 

credit score? And can you qualify, is a question I would have? 

So, just briefly, if somebody would like to address that? 

14 

Mr. WIDES. Sure. I would say mostly they are looking at the 

credit profile; they may use the credit score, but if the borrower 

does not have a credit score because of a thin file, they are beginning to use alternative data sources that look at utility payment, 

rent payment, and other public file characteristics. 

They also do a debt-to-income ratio capacity, and for credit card 

lending, under the Card Act, in fact, a capacity analysis is required. 

Mr. MOONEY. It is important that the underwriting be very 

streamlined and very fast. 

Chairwoman CAPITO. Yes, I am thinking that somebody who 

needs a $2,000 loan for whatever, it is usually something that is 

pretty crucial to them; it is not to go on vacation. And timeliness 

is extremely important. 

Mr. MOONEY. Our pilot banks turned those around within 24 

hours, some very quickly. Remember, they are serving their own 

customers, so— 

Chairwoman CAPITO. Right. 

Mr. MOONEY. —they do know them. 

Chairwoman CAPITO. Right. 

All right. Thank you. 

Mrs. Maloney? 

Mrs. MALONEY. Thank you. 

And in response to your question on the Card Act—the Credit 

Card Bill of Rights, which I authored and worked on for 4 years 

and which passed this body with strong bipartisan support, the 

Pew Foundation found that bill alone saved consumers over $10 

billion last year by stopping unfair abusive practices, such as raising rates retroactively on balances for no reason at all. 

I think the answer to that is if a bank is raising and charging 

fees, go to a different bank. Go to a community bank. Go to a credit 

union. They all provide the same service. 

And shop around. In many cases the interest rate is much, much 

lower at some banks than at other banks. So consumers should, if 

they are getting unfair fees, cancel their account and move to another bank that is providing what they feel is fair service. 

I feel that this is a truly important issue about addressing the 

unbanked, and one of the reasons that many people think that financial institutions are not providing it is that there are often not 

branches in low-income neighborhoods. But a report that was 

issued in 2008 from the New York City Department of Consumer 

Affairs on Financial Empowerment found that a fundamental mismatch between the products being offered and the population’s real 

need was the primary reason why lower loans and products were 

not getting out to the unbanked. 

And then the areas that we do have services—and I will note one 

that is active in the community I represent, which is money service 

businesses—they cannot get banks to work with them. So we really 

have to get this system to work better, and I wrote the OCC several times and inquired, was the OCC cracking down on banks that 

were working with MSBs? The banks in my district said that they 

would not offer services to MSBs because the OCC was telling 

them not to, that they were going to rate them differently. 

15 

I just want to say that I did put in a bill on self-certification of 

the MSBs, that if they comply with the Bank Secrecy Act and the 

anti-money laundering statutes, the bill makes strict penalties for 

MSBs that in any way are not up to their statements, and banks 

are not held liable for MSB activities. And the banking associations 

did not oppose this bill; they found it fine. But they are afraid of 

regulators hitting them hard if they cooperate with some of these 

alternative areas that are out there. 

So I think that banks have choices, and they are going to be 

able—they have the choice to go to what product they feel meets 

their business model, and we should recognize that and honor that. 

We are in a free enterprise system. 

But also, these new alternatives that are coming up, I believe we 

should help them regulate them—they are unregulated; they would 

like to be regulated, and maybe the OCC should start regulating 

them and working on ways they can work with the financial systems that already exist to get the credit out to the communities. 

What I am hearing many of my constituents say is, ‘‘We are seeing 

banks that are too-big-to-fail and too-big-to-give-any-credit.’’ 

So they are really important banks. They are international. They 

are serving the world, but they are not serving communities and 

they are certainly not serving the unbanked and underserved. 

I will just throw that out as a question: Would the OCC be open 

to creating a unit that would oversee or regulate these new entities 

and look at ways to encourage the existing banking system—credit 

unions, financial institutions—to work with them to get the credit 

out? We don’t have to reinvent the wheel. There are many people 

who are out there trying to help in that particular field. 

So my question is really to the OCC. 

Mr. WIDES. You raise very important points, and I would like to 

address a couple of them. Number one, the Consumer Financial 

Protection Bureau will have the authority and does have the authority to regulate the check cashers, payday lenders, and it probably would require legislation to move that function back under the 

OCC. As it relates to the money services businesses, there are 

issues that have been raised in that context relative to anti-money 

laundering, and I am not an expert on all of that, but we are aware 

of the issues that have been raised about some of the money service businesses not being able to get access to the services of banks 

because of the concern of the bank regarding the anti-money laundering. 

Mrs. MALONEY. My time has expired. I look forward to meeting 

with you on this issue. FINRA came out in support of the bill and 

the whole area that looks at that area in our economy, so I think 

it is a challenge that we need to look at. And on the CFPB, we are 

having trouble getting a Director in there so that they can really 

get started. 

So anyway, my time has expired. 

Mr. WIDES. I would be happy to work with you. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Renacci for 5 minutes for questioning. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

16 

And thank you all for testifying today. My concern is, again, the 

underbanked and the unbanked represent 14 percent, or 230 million adults in our country, and I am trying to get an understanding 

as to how we can better serve those individuals. 

Mr. Mooney, in some of your comments, you said that the 2-year 

pilot program was simple and replicable. My question is, was it 

successful in the sense that, were the banks profitable? 

And one of your other comments was that you started out with 

31 and went to 28. I would really like to hear how many banks are 

doing it now. 

Mr. MOONEY. Congressman, thank you. You hit on two very key 

points relative to the pilot program. 

The banks that participated in the program considered it to be 

successful for them because they realized that over time, they were 

able to develop longer-term relationships with customers they already had or were new customers who would become profitable 

over the long term and the long run. The banks that participated 

in the program, we started with 31; we ended the program with 28 

banks. You have to remember that this period of time, 2008 and 

2009, was one of the most financially troubled. There was such turmoil in the financial marketplaces that it would not have been unusual for a couple of banks to join and then drop out, depending 

on their circumstances. 

But at the end of the pilot program 28 of those banks continued 

to offer the small-dollar loan program. They considered it an important part of their product mix. 

What we can do— 

Mr. RENACCI. How many— 

Mr. MOONEY. —we will look for—I am sorry— 

Mr. RENACCI. I was going to say, how many today? 

Mr. MOONEY. We will find that out. We haven’t done a survey 

of those institutions recently; we will be happy to do that for you. 

[The following information was received from Mr. Mooney for the 

record: 

Number of banks in the pilot program: 28. 

Number of banks continuing to offer SDLs: 24. 

Number of banks no longer doing so: 3. 

Number of banks merged into another bank: 1.] 

Mr. RENACCI. It is very difficult to determine the success. And a 

lot of times—I was in business for 28 years, and I have only been 

in Congress for 9 months. 

Sometimes, I think people in the real world out there don’t connect with what you are saying here today, because I have talked 

to the banks and I have talked to some of the underbanked. They 

can’t get the money. They can’t borrow the money today. 

And I have talked to some of the banks. I have had meetings for 

the last 6 weeks with small banks and community banks, and they 

are not going toward these programs. They don’t feel they are profitable; they feel they are overregulated already; and they have 

problems in doing it because of all the other regulations. 

So it would be very helpful—and hopefully after today’s hearing, 

if you could get back to me and tell me, out of the 31 that started, 

17 

how many are still going forward? I would appreciate that information. 

Mr. Marquis, on the 343 credit unions you mentioned in your testimony who would report small loans on their call reports since the 

announcement of the small-loan rule, can you tell me how many 

are still participating and still following through with these type of 

programs? 

Mr. MARQUIS. That is the current data as of June, so that is the 

number of credit unions that are actually participating as of June 

of this year. And so far on their balance sheets, they have $14 million. Plus, these are small-dollar loans, so the total dollars won’t 

add up to a lot. 

And no one is saying, at least the evidence so far, that anyone 

is having any big issues with that issue. It is a high-volume issue, 

requires some human resources, but we gave them some flexibility 

to manage within that. 

And of course, they have to be a member for at least for a month 

to participate in this program, and the goal here is then to get 

them into the other financial products so they can stay a member 

of a credit union and also build a credit history so they can better 

get access to financial resources later on. 

Mr. RENACCI. And again, I guess just all three of you can maybe 

just comment on this: There are other alternatives to the banking 

or credit union opportunities, and I guess my question is, I was 

talking to some regulators last night who had said, ‘‘They are going 

to charge too many fees and they are going to charge too many interest rates,’’ and my comment was, as long as the consumer understands and is fully disclosed and totally gets it and up-front— 

if somehow they could get all the information and say, ‘‘I understand it,’’ don’t you believe that consumers should have all options 

available to them—banks, credit unions, and any other option 

available to them, as long as they are fully disclosed and they understand the consequences? 

Mr. Wides? 

Mr. WIDES. We certainly favor full disclosure. We believe that 

consumers have choices, as you pointed out. Certainly, the OCC 

has not issued any guidelines which would preclude a bank from 

offering a particular product or service that would meet the needs 

of the unbanked. 

Mr. MOONEY. I would say that the FDIC’s concern is not over the 

non-banks and what they are offering as much as it is over what 

banks are offering. We believe that banks have the capacity and 

the existing infrastructure to affordably offer small-dollar loans 

and some other products as well: 7,500 institutions exist across the 

country; 7,000 of those are supervised by the FDIC; 5,500 of those 

are banks that have less than $1 billion in assets; and about 4,400 

or so have assets of less than $250 million. 

These community banks have shown and have a proven track 

record of meeting whatever the real credit needs of their local communities are, and they have done a good job. We would like to encourage those institutions to begin offering, once again, affordable, 

small-dollar loans as an option for their community members. 

Mr. RENACCI. Thank you all. 

Chairwoman CAPITO. Thank you. 

18 

Mrs. McCarthy, for 5 minutes for questions? 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

And thank you to the witnesses. 

I happen to be very interested in financial literacy, with my colleague here, Mr. Hinojosa, and we have been working on it not only 

in the Education & the Workforce Committee, but also here on this 

particular committee. So while you have the opportunity—and I 

guess, I will go to Mr. Mooney and Mr. Marquis—to go into the underserved areas, for those that you offer credit, are you also teaching them financial literacy, how to get out of debt, how to build up 

their savings, how to have more sustainable credit and everything 

else like that? 

Mr. MOONEY. Thank you, Mrs. McCarthy. At the FDIC, we offer 

the Money Smart financial education program, and we promote 

that. It is available free of charge; it is not copyrighted. Banks, 

nonprofits, and others are offering it. Right now, our numbers indicate 2.75 million Americans have taken some portion of that 

course. 

Financial education is fine as far as it goes, but it doesn’t go far 

enough unless it results in a safe, sound, and profitable banking 

relationship, but also one that is affordable. We conducted a longitudinal survey of our Money Smart students 2 years ago to find out 

if there was an actual change in behaviors as a result of taking the 

course. In this Gallup survey, we interviewed people before they 

took the course, after they took the course, and a year later to see 

if behaviors changed. The good news is that those individuals started to budget for the first time and adhere to a budget; they saved 

more; they shopped around for financial services; and they paid 

their bills on time. This is terribly important proof to banks that 

this is a market which is very profitable and a good one for them. 

We encourage banks to not only offer financial education, but then 

open accounts for these folks. 

Mrs. MCCARTHY OF NEW YORK. Mr. Marquis? 

Mr. MARQUIS. Thank you. 

We put on several workshops for the small credit unions to help 

them do financial literacy. We also have the CDRLF fund that Congress has given money to that allows us to give technical grants to 

help credit unions put on literacy programs. 

And we have added almost 1,700 underserved areas to credit 

unions over the years. Right now, only multiple-bond credit unions 

can add underserved areas. We could go further if we could have 

other credit unions add those areas. 

We also have economic development specialists. They are not 

really examiners who examine. There are 15 of them and they go 

only to small credit unions to help them produce programs that 

better the educational needs of their membership at a credit union. 

Mrs. MCCARTHY OF NEW YORK. Mr. Marquis, also, being that you 

are in the underserved area, and I understand you have outreach 

programs, but what products do you offer that are the most successful? Plus, how do you handle those customers who go into default? How do you work with them? 

Mr. MARQUIS. Every credit union does it a little bit differently. 

Delinquency sometimes tends to be a little higher in our small 

credit unions. 

19 

Over the decades we have learned, as examiners, how to deal 

with that. Just because they skip some payments, they usually 

make their payments over time, especially on the low-dollar 

amounts. There are different ways to look at that. A credit score 

is not the only way to evaluate a loan. 

A lot of low-income people have other ways to make income. We 

look at what their character is; we look at how they pay their other 

bills. And over time, they establish a relationship with the credit 

union and the credit union learns who those members are, and 

over time they understand how they get in trouble from time to 

time over short periods of time, and they learn to work with their 

members. 

But every credit union is a little different. They just have to 

learn how to manage their delinquency in a prudent way to maintain safety and soundness. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

With that, I yield back my time. 

Chairwoman CAPITO. Thank you. 

Mr. Luetkemeyer, for 5 minutes for questions? 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Mr. Mooney, in your testimony you make a comment that you 

are studying the creation of pools and nonprofit or government 

funds to serve as guarantees for small-dollar loans. Can you explain that program just a little bit for me, please? 

Mr. MOONEY. Yes. We are familiar with different government 

programs. For example, the State of Maryland has one, I believe, 

and the State of Virginia, whereby funds are either made available 

to guarantee these types of loans, and in those particular cases, we 

have seen them involving State employee programs partnering 

with either a credit union or a bank. In Illinois, for example, there 

was a bank in Lake Forest that actually partnered with a local 

city, and they were part of our small-dollar loan program, to offer 

small-dollar loans through the City’s payroll department. 

Mr. LUETKEMEYER. Are these States where they normally don’t 

have any small-dollar lending authority, or are these in competition with existing— 

Mr. MOONEY. That is a good question. I don’t know what the answer to that is. 

Mr. LUETKEMEYER. Quite frankly, I am kind of concerned from 

the standpoint that if you get the government involved in guaranteeing loans again, we have found that this has been kind of a disaster in the housing situation, where you had two separate programs that have come through this committee—the one was a 95 

percent loss; the other we spent $40 million for, I think, 11 loans, 

or something like that, which is a disaster. 

And now, we are looking at something like that again. If private 

enterprise is willing to take that risk, and we have entities out 

there that are willing to do this, why are we even looking at this 

unless it is a State where we don’t have that authorization? 

Mr. MOONEY. You raise a good point. I think that is worth considering. 

Mr. LUETKEMEYER. Okay. Along those lines, with regards to the 

small-dollar pilot program that you had, I know one of the folks 

testified here recently when we were discussing it with them, and 

20 

I had the FDIC in my office and we discussed it thoroughly, that 

some of the folks who participated in the program and were supportive of it did it because it helped them with their CRA rating— 

Community Reinvestment Act. And I can understand that is—because that is basically what CRA does. It tries to get you into other 

areas they believe are underserved. 

So, Mr. Wides, do you think this is a pretty good way to go to 

help with the CRA rating? Would you be supportive of that if you 

had a bank that wanted to do this? 

Mr. WIDES. Yes. We have had a number of banks let us know 

that CRA was a main driver for them getting involved. But what 

we found was after they got involved with the program, they actually found that it was a way of attracting new customers and a way 

of providing a service that they could do. 

They didn’t say that it was profitable, but they said that it was 

manageable, in terms of the costs that they incurred. And they did 

find efficiencies, and this was something we had talked about earlier, that they had found ways to more efficiently process them, and 

I think that there is a lot of knowledge-sharing around that. 

Mr. LUETKEMEYER. I had some discussions with some of the 

banks in my district recently, and what is the normal time that it 

takes to get a CRA rating once the examination has been completed? 

Mr. WIDES. I would have to get back to you. I think it would depend on the size of the institution and— 

Mr. LUETKEMEYER. Can you give me a rough estimate—a month, 

2 months, 6 months, 10 months? 

Mr. WIDES. I would have to get back to you. I would like to— 

Mr. LUETKEMEYER. Do you think 3 years is a little out of line? 

Mr. WIDES. I would say for a community bank, yes. For a very 

large bank, that would probably be the sort of the outset of how 

long it could take. 

Mr. LUETKEMEYER. Normally, you have those exams about every 

2 years, do you not? 

Mr. WIDES. Large banks would have an exam every 3 years, 

roughly; a community bank every 5 years, assuming they have 

good CRA performance. 

Mr. LUETKEMEYER. I am a former regulator. I don’t quite think 

that is where we are going, but I will let you get away with that. 

I really think that when we are looking at 3 years, and you are 

getting to the point where you are getting into the next exam, I 

think we have missed the boat. So, I think we need to take a look 

at our processes and procedures to make sure we get back to where 

we are going to be so we can get these banks to where they can 

actually go out, because what you are doing is hindering them from 

being able to expand, put in new branches, buy additional banks, 

and in doing that, now we are exactly where we are at today with 

this, from the standpoint we are hurting the ability of people to get 

credit and be able to access financial services. 

So I am very concerned about that, and I would love to continue 

the discussion with you on that off to the side. 

I am kind of curious, also, I know in the pilot project, one of the 

things that you discussed was the terms of the loan. I know that 

in discussing it again, with the FDIC folks, the successful folks who 

21 

had the program had larger amounts than what normal payday 

loans are, and it extended the terms out longer as a result of that. 

Do you think that is something that can be worked on with regards to a new pilot program, and perhaps have the FDIC engaged 

with the small lending—small-dollar folks? Why would you not include them in your pilot program? Right now, it is only the banks. 

Why do you not include the small-dollar folks in the program? 

Mr. MOONEY. We certainly encourage partnerships for banks 

with others, but at the same time, the FDIC chose to focus on the 

banks that it supervises relative to involvement in the pilot program, as well as banks that it insures. What we want to do primarily, Congressman, is to encourage a large number of institutions with a large branch network to begin to think about offering 

this type of affordable credit to their communities. 

Mr. LUETKEMEYER. I had discussions with your comrades. They 

made a statement that they are not prohibited from doing that. I 

assume that is— 

Mr. MOONEY. Correct. They are not prohibited from doing that. 

But again, for the pilot program our focus was on those institutions 

that we insure and supervise. 

Mr. LUETKEMEYER. Thank you very much. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Gutierrez? 

Mr. GUTIERREZ. Thank you very much. 

To Mr. Mooney and/or Mr. Wides, I understand that there are 

guidelines, but some mainstream banks are still offering loans that 

have the same pitfalls as payday loans. What is the FDIC or the 

OCC doing to prevent financial institutions from offering predatory 

services? Please, either one of you can begin. 

Mr. Mooney? 

Mr. MOONEY. Congressman, thank you for raising this issue. It 

is important to us during our examination process to ensure that 

consumers are treated fairly and that the products and features are 

fully disclosed. 

We are also concerned about bank partnerships with third parties that may be engaging in activities that do not comply with consumer protection laws and regulations. Certainly, a focal point of 

our exams is on current deceptive acts and practices. 

To that end, the FDIC issued particular guidance to financial institutions it supervises on the risks inherent— 

Mr. GUTIERREZ. Because of the clock, unfortunately, there was a 

minute between the answer part of your answer and part of my 

question. So, what do you think? 

Mr. MOONEY. I think most of our banks don’t show much risk in 

terms of offering products that are that troublesome. 

Mr. GUTIERREZ. They don’t show any risk— 

Mr. MOONEY. Nonetheless— 

Mr. GUTIERREZ. What do you think about the consumer? 

Mr. MOONEY. Oh, the consumer— 

Mr. GUTIERREZ. Do you think this is a good deal for the consumer to walk into Wells Fargo or U.S. Bank and take out a—what 

is the—do you think these are essentially payday loans? 

Mr. MOONEY. I would have— 

22 

Mr. GUTIERREZ. Have you examined these loans? 

Mr. MOONEY. I think your points certainly indicate that there 

may be problems with them, and I would certainly pay attention 

to your views. 

Mr. GUTIERREZ. Okay. Could you please look at these loans— 

Mr. MOONEY. Of course. 

Mr. GUTIERREZ. —and evaluate these loans, and maybe get back 

to us? Because I am going to read it, and it says, ‘‘The direct deposit advance service offers a temporary source of credit when you 

need help managing unexpected or emergency expenses. As a Wells 

Fargo consumer checking customer you qualify for up to $500 with 

advances directly linked to your direct deposit on your checking account. The credit service advance access to your next electronically 

deposited paycheck or recurring deposit of $100 or more.’’ 

I think that if you looked at an advertisement for a payday loan, 

it would read almost exactly the same way. And the terms are almost—they are going to offer you 20—it is 120 percent APR if you 

don’t pay it, right? You can pay it all back, so you get a one-time 

fee. 

But if you don’t pay it, they allow you to extend the loan, and 

extend the loan, and extend the loan up to 6 months. And then 

there is a cooling-off period, but they don’t stop charging you interest on the loan; they just don’t allow you to take any more money. 

These are all the same pitfalls. You have examined the payday 

industry. You know something about the payday industry, don’t 

you, Mr. Mooney? 

Mr. MOONEY. I think that your points relative to the features 

that you discuss are worth looking at. We have always shared the 

concerns about consumers who are in desperate need of cash getting to the right products. 

Mr. GUTIERREZ. And I guess my only point is, in the past they 

would always say, ‘‘These are not FDIC-regulated institutions. 

These are payday loans. These are institutions outside the regulatory sphere.’’ 

But these are within the regulatory sphere of the FDIC, and how 

it is that—anyway, Mr. Wides? 

Mr. MOONEY. Your points are well made and well taken. 

Mr. GUTIERREZ. OCC? 

Mr. WIDES. Yes. We are aware of those concerns. Those concerns 

led us, actually, to issuing proposed guidelines back in June regarding the appropriate safety and soundness and consumer protection that should be provided with these types of products. 

We have received about 14,000 comments. The comment period 

closed last month. And we are looking at the various comments and 

certainly will take into account the various types of concerns that 

you raise today as we look toward finalizing this guidance. 

Mr. GUTIERREZ. I understand the functioning that you have. But 

that is why I was always fighting for a consumer protection agency, 

someone whose purpose is to look specifically at these kinds of 

loans. 

And I have to tell you that I sit here and I keep hearing about 

how it is that the Fed and the government is just—first there was 

the $700-plus billion bailout that maintained it; now they are coming back with these kinds of loans. And then it is FDIC-insured, 

23 

and we all know that things have been going well, but they could 

go badly. 

We back them up, but they are not backing us up. And I hope 

the two of you take a close look at this so that we don’t fall into 

this kind of exploitation of our American taxpayer. 

Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Pearce, for 5 minutes? 

Mr. PEARCE. Thank you, Madam Chairwoman. 

The richness of what we are doing here today is amazing. We are 

hearing the testimony of how the government is advising people 

who are broke to borrow more money. 

If there is anything that the government knows how to do, that 

is it. We are borrowing 42 percent of every dollar that we spend, 

and in fact, we can’t borrow that much so we actually printed 70 

percent of the money that we borrowed last year. 

So I hope next, you give printing lessons to those people who 

can’t afford to get more loans. Let’s keep the continuity going here. 

It would also be interesting to see if you talked to the largest 

payday lender in history—that would be the IRS. They have extraordinarily high interest and penalties, and they just keep going 

no matter what, as long as you don’t pay, and so many times the 

interest and penalty are far greater, and it basically looks like a 

payday loan to me, what the IRS is doing. So I hope that at some 

point, your agencies will drift off into those oversights. 

Mr. Mooney, I am interested in your small-dollar loan pilot program. New Mexico’s average income is about $29,000, and we have 

Indian reservations where the unemployment is running in the 30 

percent range. I notice that none of the banks in that list come 

from New Mexico. 

What are the criteria for choosing those banks? 

Mr. MOONEY. First of all, it is entirely voluntary. They had to be 

well managed and well run. We looked for a variety of institutions 

across the country of different asset sizes and different business 

strategies, but they had to actually apply and volunteer for the program. 

Mr. PEARCE. Okay. Now, you mentioned that the default rate is 

3 to 4 times on these loans. 

Mr. MOONEY. That is right. 

Mr. PEARCE. Do these customers pay more interest? Do they 

have other requirements? 

Mr. MOONEY. I am not aware that there was, in most cases, an 

interest adjustment relative to delinquencies, but most of those delinquencies were brought up to current status during— 

Mr. PEARCE. Would you all look with suspicion if banks actually 

charged more interest to people who default at a higher rate? 

Mr. MOONEY. No. In fact, in this program we wanted to conduct 

a feasibility study. We wanted to find what the impact was on 

banks and we wanted to give them enough flexibility so that they 

could innovate. That would include the rates and fees they charge. 

I should point out, about half of the banks that participated did 

not charge additional fees, but half did. Although for all of them, 

the total cost of the loan was still less than 36 percent APR. 

24 

Mr. PEARCE. Just an observation, I think if we—let’s say that we 

started a stock fund that was going to fund the kind of loans that 

you are talking about today—all three of you—and we gave priority 

to Members of Congress who are telling banks how to loan their 

money and how to run their business, I suspect you wouldn’t get 

one Member of Congress who would buy the preferred stock to lend 

people money who may or may not pay back where the chances of 

not getting your money back. 

So what we are engaged in here today is noble, but also it is 

highly suspicious. It is one of the reasons businesses are having 

very great difficulty making it. When we are faced with 9 percent 

unemployment, we are spending a lot of effort in an area which I 

don’t think any one of us would put our money into that. 

Would you invest in a stock like that, Mr. Mooney, if you were 

given the opportunity to put your own money into a stock that 

would go in and lend to people who have a history of not repaying? 

Mr. MOONEY. I— 

Mr. PEARCE. You don’t have to answer that. I am asking— 

[laughter] 

I just thought it would be interesting to pitch it out there. 

Anyway, just—I do get the richness, and I understand what we 

are talking about, but at some point, if you don’t have any money 

you probably shouldn’t be borrowing too much more, and if we 

would learn that method in the Federal Government, we might get 

our credit rating back instead of having it downgraded even worse. 

But I yield back my time, Madam Chairwoman. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Watt? 

Mr. WATT. Thank you, Madam Chairwoman. 

I actually came not expecting to ask any questions, but because 

I actually thought this hearing was more about something slightly 

different, and I wanted to find out what was going on with reevaluation of collateral, but this is a different category of borrowers we 

are talking about. But I am, kind of like Mr. Pearce, surprised 

that—maybe from a slightly different perspective, but we are here 

bragging about a pilot program that has an annual percentage rate 

of 36 percent, and last time I checked most of these banks were 

borrowing money from the Fed at zero percent. 

I assume, based on what all of you have testified, including the 

credit union, Mr. Marquis, that all of these people go through some 

credit qualification. It sounds like they pay back their loans. They 

might not pay them on time. 

Why are we bragging about—and then I heard Mr. Wides say 

that now we want to give them CRA credit for loaning money to 

somebody at 36 percent interest that they got at zero percent interest. I am having a little trouble figuring this out, so maybe you all 

can help me, because I don’t think we ought to be—I am like Mr. 

Pearce. I don’t think we ought to be loaning money to people who 

can’t pay it back. 

But if an assessment has been made of their credit and they are 

going to pay it back I don’t think we ought to be charging them 

36 percent annual percentage rate on money that the lender got for 

zero percent. And this is not—and I don’t think the FDIC ought to 

be bragging about a pilot program that has a 36 percent annual 

25 

percentage rate on. So help me understand what I am missing 

here. 

Mr. MOONEY. Congressman, thank you for that point. I want to 

clarify that in the pilot program, no institution charged more than 

a 36 percent APR; many institutions charged far less. Some were 

charging 10, 12, or 15 percent interest. It doesn’t speak to your 

point—and an important point—about the funds they use to lend 

to those individuals or the interest rate that they pay to borrow 

those funds. 

But I think what we tried to do during this pilot program was 

to encourage institutions to offer fair, responsible, and affordable 

interest rates, so that they could afford to repay over a reasonable 

period of time. And that is what we think those institutions did do. 

Mr. WATT. $1,000, $360 in interest if I keep it for 1 year? I am 

missing something. 

Mr. MOONEY. Some actually were charging lower interest rates. 

The 28 institutions’ experience was different. We didn’t want to see 

them— 

Mr. WATT. Mr. Pearce might change his mind about investing in 

that—that is a pretty good return, if somebody is actually paying 

the loan back. And then I get on his side of the equation. If they 

are not going to pay the loan back, then I am not sure why we are 

encouraging them to borrow. 

So, I am just frustrated, I guess, as a lot of the borrowers out 

there are, and it is not unique to the people in this category of borrowing. It goes on up the line. It goes on up the line. 

Mr. MOONEY. During the pilot, some banks in the pilot—and we 

encouraged them to do this—offered a savings component on the 

repayment of the loan, so a portion of the payment would go into 

a savings account so they wouldn’t have to borrow again, so they 

would have a financial cushion, a small amount of savings to meet 

emergency credit needs. 

So I think, Congressman Pearce and Congressman Watt, your 

points relative to the fact that some people may not be able to afford to borrow responsibly but should begin saving to develop that 

cushion if they can is a point well taken. 

Mr. WATT. Thank you. 

Madam Chairwoman, I yield back. 

Chairwoman CAPITO. Mr. Westmoreland, for 5 minutes? 

Mr. WESTMORELAND. Excuse me, I would like to ask the OCC 

and the FDIC, are you allowing Georgia banks to offer any of these 

products? 

Mr. MOONEY. We would encourage banks to consider offering 

these products anywhere, yes. 

Mr. WIDES. The OCC supervised five national banks that participated in the pilot. None of those five banks were located in Georgia, although if a bank in Georgia wanted to offer a product along 

the lines of the FDIC’s program, we would not have a supervisory 

objection assuming it had appropriate safety and soundness controls. 

Mr. WESTMORELAND. Have any of the Goergia banks asked to do 

this? 

Mr. MOONEY. In the pilot program we had, I believe, two Georgia 

banks that were part of the program. 

26 

Mr. WESTMORELAND. And so none of them were approved? 

Mr. MOONEY. I believe that they were part of the program, and 

I could check that for you. I don’t know if they were or were not 

national banks, but they were FDIC-insured banks, if that is what 

you are asking. 

Mr. WESTMORELAND. Do you tell these banks how much to 

charge for these type of loans—this credit? Anybody? 

Mr. MOONEY. Either of us? No, we did not. We asked that they 

be affordably priced. We showed them the guidelines where we had 

a maximum of 36 percent APR. But we wanted to promote flexibility and innovation in the pilot program, Congressman, so that 

the banks had a free hand to analyze their costs and decide what 

their charges and fees would be. 

Mr. WIDES. For the five national banks that participated in the 

FDIC’s pilot, they developed the guidelines themselves. In fact, four 

of the five national banks that participated in the FDIC’s pilot had 

offered this product prior to the FDIC announcing its pilot. I spoke 

to one community banker in Texas who told me that they had been 

offering this product for 20 years, that this is part of the breadand-butter business of lending in this small community in Texas. 

So, the OCC did review the terms under which the banks were 

offering it, did not engage in any way in terms of the terms or features and monitored with the bank to make sure that the performance was done in a safe and sound manner. 

Mr. WESTMORELAND. Is the Consumer Financial Protection Bureau going to regulate these banks that are doing that, or are you 

all going to continue to regulate them, as far as consumer protection? 

Mr. WIDES. The Consumer Financial Protection Bureau has direct supervisory responsibility for banks over $10 billion in assets 

as it relates to certain consumer protection laws. So for the five 

banks that participated in the pilot that were national banks, none 

of those banks had assets over $10 billion, so the OCC would continue to supervise all aspects of those banks’ operations, including 

this pilot. 

Mr. WESTMORELAND. And, Mr. Marquis, let me ask you a question: Under the options that you got for increasing access, you talk 

about going into underserved areas and offering, I guess, your 

products, or—and it says that you would also be able to participate 

in a community development financial institutions fund. Is that 

correct? 

Mr. MARQUIS. Many credit unions participate in the Community 

Development Loan Fund Program. I think we have let low-income 

credit unions borrow about $54 million over the past several years, 

and it also gives them access to technical development funds or 

grants. 

Mr. WESTMORELAND. Isn’t that just a taxpayer guarantee on 

those loans? 

Mr. MARQUIS. On the loans, they—we have never had a loss on 

one of those loans. They have always been paid back. There has 

never been a delinquency on one of those loans. 

Sometimes, we require matching funds if we think the credit 

union is distressed a little bit, but that has never produced a loss 

27 

to that fund. The technical development grant is roughly $1.2 million appropriated by Congress every year. That is— 

Mr. WESTMORELAND. I understand, but my question was, are 

these loans guaranteed by the taxpayer? 

Mr. MARQUIS. I guess they are guaranteed by the taxpayer to the 

extent, though, that if we had to liquidate one of those credit 

unions, they are protected by—they have access to all the balance 

sheet assets first, so in all likelihood, the share insurance fund 

would absorb that loss, not the taxpayer. 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Baca, for questions? 

Mr. BACA. Thank you, Madam Chairwoman. 

Mr. Mooney, in your testimony you detailed a small-dollar loan 

program and how it was constructed and operated during the last 

2-year period in 2008 to 2009. You urged that the pilot project provide a template for safe and affordable small-dollar products. 

You argue that banks offer these products in a way that meets 

the business needs, and I want to follow up in a question there. If 

these programs have been successful, then why do only 26 percent 

of the institutions in the country offer these products? That is question number one. And surely this can’t be enough institutions to 

meet the needs of the 50 percent of the Americans who have trouble raising a $2,000 loan in 30 days, especially considering the pilots only took place in 27 States. 

Mr. MOONEY. Those points are well made, Congressman, and 

that is precisely why we engaged these institutions in the pilot program. We wanted to demonstrate that banks should consider offering these products to their customers. We wanted to find out 

whether or not they would be profitable, whether or not institutions would consider offering them on their own. 

What we found out was that banks did consider the long-term relationships that they develop with these customers to be profitable, 

and that was the primary reason why they engaged in the program. 

We also wanted to produce a model that would be replicable— 

that we could encourage other institutions to consider. The fact is 

that banks have the infrastructure currently in existence and the 

capacity to make these relatively small-dollar loans available to 

their customers. 

Most of the customers of payday lenders and alternative lenders 

have checking accounts with insured financial institutions. We 

think it is important that those institutions consider serving them 

in helping to meet their needs as well. 

Mr. BACA. Some of these loans could go up—you stated earlier, 

or I heard the figure—up to 36 percent interest, is that correct? 

Mr. MOONEY. Some did go up there, but there was a variety of 

interest rates. Banks were able to set their own. But all of them 

were offering interest rates and— 

Mr. BACA. So actually, the 36 percent interest rate is even higher 

than that when someone is late in payment, which means they are 

paying a lot more, aren’t they? 

Mr. MOONEY. They could be if there was an additional late 

charge, yes. 

28 

Mr. BACA. So versus an uncharted bank or someone else that offers a $2,000 loan for ‘‘X’’ amount of dollars means that they are 

actually paying a lot less than someone who is charging 36 percent 

interest rate plus late payment. Is that correct? 

Mr. MOONEY. I am not sure of that. 

Mr. BACA. You are pretty sure it is correct. It would be higher 

when you take in the total percentages that someone would pay in 

the interest rate, now they have a late payment, now the payments 

are a lot higher so when you calculate that—and you borrowed only 

$2,000. I don’t know how you can do that. 

But let me ask another question: You said that—earlier I heard 

you make a statement that it would take—for someone who wanted 

to borrow some money, it would take maybe $2,000 or less—I will 

use that figure. It could take up to 24 hours turnaround time. Is 

that correct? 

Mr. MOONEY. Yes. Most of the banks in the pilot try to make the 

decision within 24 hours. 

Mr. BACA. So what happens if you have an emergency and you 

need to fix your vehicle, and you need 4 tires, you had some maintenance, and you needed a $2,000 loan, and what—you have to 

wait 24 hours for a response? 

Mr. MOONEY. That is right. 

Mr. BACA. So that means you are out of luck, you lose your job 

possibly, because someone may say, hey, you didn’t have a vehicle 

in an emergency. So that is a problem that we have because you 

have 24 hours turnaround when you can go somewhere else and 

obtain a loan and get it and take care of the emergency that is 

there. 

So I have a question. I have problems with that 24-hour period 

because that is quite a long time because then you have to turn 

around and do the credit check on the individuals, and of course 

you are only going to give it if they establish credit, have good credit, and have a history in that area, so that presents some problems. 

Let me ask another question: In recent years—this is to the entire panel—the Federal Government and the Federal regulators 

have begun to allow banks and credit unions to offer small-dollar 

loans to underserved populations. However, it seems that these efforts have fallen drastically short when compared with the actual 

problem. Then I ask, why would the government need to continue 

using these programs when it seems that we have the tools in the 

private sector to build upon and expand? 

To any of the panelists? 

Mr. MOONEY. Thank you for that. This is one of the reasons why 

the FDIC has promoted the small-dollar loan pilot program. 

We asked banks to volunteer to offer these programs. They are 

not underwritten in a way that would pose a risk to the taxpayer. 

There are no Federal guarantees involved; we wanted just private 

sector involvement and we wanted to see if they would work without that kind of assistance. I think we showed that they can do 

this, or at least the institutions who participated helped us draw 

that conclusion. 

Chairwoman CAPITO. Thank you. 

Mr. Grimm, for 5 minutes? 

Mr. GRIMM. Thank you, Madam Chairwoman. 

29 

Mr. Mooney, you are on a roll so I am going to kick it over to 

you. It is my understanding that many of the non-depositories have 

developed quite a bit of expertise, I would say even efficiencies, in 

making and servicing loans to a higher-risk consumer who typically 

cannot qualify for a small loan and other credit products that are 

out there at depository institutions. 

Are there any conditions under which you believe that a qualified 

non-depository lender should be allowed to partner or otherwise 

work with the depository banks to provide innovative small loans 

and other credit products? 

Mr. MOONEY. Banks have always partnered with third parties for 

a variety of reasons, including to obtain computer services that 

they provide; and to provide nonfinancial and other financial services, including loans. There are risks involved. We would warn institutions to be careful of those risks and to manage that third 

party relationship carefully. 

Risks would include operational risks, credit risks, reputational 

risks, and the like. But if the bank is involved in activity that is 

legal with a third party, and they are closely monitoring and managing the actions and activities of that third party, and if they have 

the capacity to do that and do it well, then we would consider them 

in compliance with our guidance on third party risk. So I would say 

that is a possibility, yes. 

Mr. GRIMM. Okay. Thank you. 

Mr. Marquis, under the Credit Union Administration—under 

their regulations, you mentioned that interest charged to consumers is limited but you don’t say what exactly that is. Can you 

tell me what the limit on interest rates is? 

Mr. MARQUIS. Yes. Overall, the interest on credit unions is set 

by statute, except for in certain circumstances that we can do these 

pilot programs at 18 percent. In this particular program, we have 

allowed the credit unions to charge up to 28 percent provided that 

we don’t have rolling loans where the consumer doesn’t have the 

capacity to repay. So we are trying to make this an alternative to 

payday lending and an opportunity to establish credit at a financial 

institution to better be able to get credit in the future. 

So far in this program, that has been outstanding. For a year, 

the average interest rate that credit unions did end up charging 

came out to 21 percent. 

Mr. GRIMM. Thank you. Under the small-amount loan rule, I 

think it is called, you list several requirements for the program, 

from loan amounts to application fees. Why were these chosen, specifically? Why would you limit a consumer who pays exactly on 

time or early, even—some pay early—from using the product more 

than 3 times in a rolling 6-month period? 

Mr. MARQUIS. The only time that goes into effect is when a credit 

union wants to charge that extra interest rate in the small credit 

union program up to the 28 percent, and a consumer who has been 

a member for a long time in good standing with the credit union, 

there is nothing to stop the credit union from lending to them continuously on a revolving loan program. This is just to get people 

who have not participated in the credit union to establish a history 

with the credit union and to improve their credit histories. 

30 

And these loans are not predatory. We want to make sure that 

the member does, in fact, have the capacity to repay, so we said 

you can make 3 loans over a rolling 6-month period, but you can’t 

add a fee to it if you extend the loan term, and you can only charge 

a $20 fee or less in order to implement the loan. 

Mr. GRIMM. Okay. Thank you. 

I just wanted to say that there are certainly a lot of underserved 

communities. Access to credit, I think, is something that is a problem throughout the entire United States and throughout just about 

every community. 

And with the current state of our economy and the fact that 

many, what we have considered stable, middle-class homes that always paid their bills on time, are obviously having trouble right 

now. Take Staten Island, in Brooklyn, where we just got hit by a 

hurricane. Those who traditionally always made their bills, they 

are out of work and they have an emergency—literally an emergency. 

I am just going to tell you, people are going to find ways to get 

through that emergency. We need to make sure that they have that 

access. 

With that, I yield back. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Scott, for 5 minutes? 

Mr. SCOTT. Thank you. 

This has been a fascinating hearing. I have been grappling with 

how to approach the situation from my knowledge. We have an 

issue here that involves two basic groups, and we are trying to get 

an answer that I think kind of ignores that fact. 

First of all, we have the unbanked and we have the underbanked. And I don’t see how the pilot program that we are talking 

about—that you were talking about—can even approach the bigger 

part of this problem, which is the unbanked. 

According to a recent study by one of our accounting firms, 

KPMG, there are 33 million unbanked, and the unbanked are those 

individuals who have absolutely no relationship with a bank. They 

have no account; they have nothing. So how can we even begin to 

approach the program? 

And then the other issue is, banks basically are high-profit, lowrisk, and with stricter regulatory forms that we are placing on 

them due to the recent crisis we have had, they are tightening 

their underwriting requirements, making it even more difficult. So 

it seems to me that a part of this hearing should be to take a look 

at and see—for example, let me just get, for the record, do each of 

you agree that there is very serious and very great opportunity and 

room in all of this for the alternatives, like payday lenders, pawn 

shops, cash checking services, that really apply to the need of easy, 

quick access to these 33 million, and the fact that can these financial institutions really even begin, given their structure, to really, 

really address this issue? 

Now, the underbanked certainly has some possibility here. They 

have a relation with the bank. They just have low credit ratings. 

So I want to sort of find out find out first—am I right about this? 

Is this a— 

31 

Mr. MOONEY. Yes. We conducted our unbanked and underbanked 

survey, and we found out when we surveyed banks that 73 percent 

surveyed were aware of needs in low- and moderate-income and 

underserved areas, but only 18 percent prioritized the need to develop those products and services. That is why we decided to focus 

on and encourage and find different ways that banks can help to 

meet those needs. 

In 14 MSAs around the country, we have gone to the trouble to 

establish Alliances for Economic Inclusion. Many hands make light 

work, and many partners can help address this particular problem 

that you outlined so well. We have over 1,000 partners nationwide 

in these 14 alliances. Over 300 banks are part of that, and each 

of those meet on a regular basis locally to identify areas of need, 

to identify underserved customers, and try to figure out new ways 

to provide affordable financial services to those individuals. 

We think that it is our job to continue to encourage banks to do 

that. Banks have the capacity, Congressman; they have the infrastructure already in place to begin offering these products. The expenses, the overhead—all of that is already in place. What we 

would like to see them do is to help meet the needs of those particular residents in their community as well. 

Mr. SCOTT. Let me just ask your response to some of the potential barriers that are faced with. Does consumer confusion about 

what types of acceptable forms of identification are required to 

open a bank account—just that one fact, does that discourage some 

of the consumers from using the financial institutions? 

Mr. MOONEY. We have learned in our partnerships with nonprofits—who work face to face daily counseling consumers—that 

can be a cause of concern. Nonetheless, in those partnerships that 

I talked about and these alliances, banks are finding new ways to 

satisfy those identification requirements and to make consumers 

feel more comfortable when they are actually opening these accounts and engaged in those transactions. 

Mr. SCOTT. And what about the holding period for clearing 

checks? Because the problem which you have here is there are 

many people in these emergency situations who need it quickly; 

they need it now, and that is why they go to some of the alternatives. Can these banks fix their situations in terms of the holding period? 

Chairwoman CAPITO. The gentleman’s time has expired. Thank 

you. 

Mr. SCOTT. Thank you. I am sorry. 

Chairwoman CAPITO. Mr. Fincher, for questions? 

Mr. FINCHER. Thank you, Madam Chairwoman. 

Last week, I was looking into the financial situation we find ourselves in as a country, and I was looking at the average credit card 

debt per household in the country was about $7,000, something like 

that, and it just was unbelievable how much debt we have as a 

country, but also personally how much debt we have. And as we 

are listening to the testimony today—and I really appreciate the 

input—there is a level of personal responsibility that we all have 

in the country, and we must go back to that, that the government 

isn’t the answer-all. We need to do our part. 

A couple of questions. 

32 

Mr. Wides, for you first. You recently proposed guidance on payday loan alternatives that covers disclosures, costs, and usage, but 

did not impose specific requirements or limitations. Why did the 

OCC decide to use guidance that lacks specifics? 

Mr. WIDES. Thank you, Congressman. 

It is principle-based guidance. It is trying to lay out what our 

safety and soundness expectations are for national banks and Federal savings associations, in recognizing that there are needs for 

consumer protections, as well. 

The guidance is out in proposed form. The comment period closed 

back in early August. We are reviewing a significant number of 

comments relative to that guidance. 

We have received comments from some commenters who have 

raised the concern that you have raised, that perhaps there should 

be specificity on that point. But at the same time, we received comments on the opposite point of view, as well. So we are looking at 

all the comments and working through that, and trying to come up 

with an appropriate outcome. 

But I can’t really go into much more in terms of our guidance, 

because it is still in proposed form. 

Mr. FINCHER. How long will it take, do you think? 

Mr. WIDES. I really can’t give you an idea at this point, unfortunately. The comment period closed last month. As I mentioned earlier, we received about 14,000 comments. It was an area of great 

interest by consumer groups, as well as financial institutions and 

major trades, so unfortunately, I can’t really give you a timeline. 

Mr. FINCHER. Mr. Mooney, there is a need for short-term, lowdollar loans, particularly in my State of Tennessee. However, based 

on what I have heard today and what I see at home, banks are not 

meeting this need. So in your opinion, why should banks be getting 

involved if they don’t seem to be interested while there is private— 

the free market private sector already meeting this need? 

And then, the last part, to Mr. Marquis, how are banks ever 

going—or credit unions—going to be able to serve people who don’t 

have credit? 

Mr. MOONEY. Congressman, thank you. While the business strategy of different banks may vary, and not all banks may be seeking 

to meet a retail market need, most banks do. Banks are chartered 

by States and the Federal Government to do business, to serve 

their communities, to meet their financial needs. 

While we would like to see all banks offering this type of product 

to meet this important need in many communities—we are encouraging as many as possible to actually do that. They are there. They 

have the offices; they have the employees; they are paying the overhead. And it may make sense for them, in terms of their overall 

business strategy. At least for those where it does make sense, we 

would like to see them do more. 

Mr. MARQUIS. On a safety and soundness basis, you obviously 

don’t want to have a consumer get into a debt spiral. You don’t 

want to cause more harm, as they say. 

So you want to establish credit history for that consumer by 

making them crawl before they walk, in terms of establishing credit history. Credit unions are not in business to make a profit. They 

33 

make a profit only to establish adequate capital levels for their institutions. 

The more credit unions can establish relationships in underserved communities, and have better access to underserved communities, the more capacity they will have to step up and help them 

establish a positive credit history. 

Mr. FINCHER. Thank you, guys. I appreciate it. 

I yield back. 

Chairwoman CAPITO. Thank you. 

Mr. Carney, for 5 minutes? 

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

having this—what Mr. Scott characterized as a very fascinating 

hearing today. I have to agree with that characterization. Confusing as well, as we heard Members on both sides of the aisle talk 

about the need to provide services and credit for the unbanked, the 

underbanked, and yet, they are concerned about predatory lending 

rates. 

The question was asked, is this the appropriate venue for traditional banks? I think the answer is ‘‘yes.’’ The answer I heard was 

‘‘yes.’’ I would like to hear the answer from the OCC to that question, because obviously the credit unions are doing it, so they must 

feel it is an appropriate—but I didn’t hear anything from the OCC 

about whether this is an appropriate space for regular banks, if you 

will, for your banks. 

Mr. WIDES. Yes, if it is subject to safety and soundness guidelines. 

Mr. CARNEY. So that seems to be the question, on the balance between safety and soundness and what are affordable or reasonable 

rates. And how do you—how do we do that? How do we settle on 

what is predatory and what is not? 

I was a little surprised to hear the credit union rates, frankly, 

were as high as they were. If you added profit onto that, that 

would put it into the 30 percent range. Your average, I guess, was 

20 percent, so maybe not into the 30 percent range. 

I heard my colleague up here express concern about 38 percent. 

How do the banks, or how do—what is your role as regulators in 

that process in determining what is predatory or not in this space? 

Anybody? 

Mr. WIDES. There is no rule or regulation or statute that establishes a maximum interest rate for a federally chartered thrift or 

national bank. 

Mr. CARNEY. So they could charge whatever would be acceptable 

in the market? 

Mr. WIDES. They are also underwriting a credit risk here— 

Mr. CARNEY. Sure. 

Mr. WIDES. —and we expect them to be prudent in terms of underwriting the credit risk to a borrower who has sufficient repayment capacity. That seems to be, I think, the real issue in terms 

of the interest rate that is charged is, what is that borrower’s repayment capacity? What is the default rate? What is the loss rate 

that you suffer on a given borrower— 

Mr. CARNEY. So some assessment of the loss ratio is going to be 

part of the pricing, right? That is fairly obvious. And then I guess 

34 

the administrative costs of making low-dollar, short-term cash 

available to consumers. Is that— 

Mr. WIDES. Yes. That is correct. 

Mr. CARNEY. —fair? 

Mr. WIDES. Yes. 

Mr. CARNEY. But we don’t seem to have, on a political level, a 

good handle on what is acceptable, I guess. Rates that have been 

mentioned here in this hearing today have struck some people on 

both sides as kind of unacceptable. How do we—as Members who 

come here to represent our constituents and our districts—look at 

that question of what is affordable, what is predatory, and what is 

acceptable? I guess it depends on our particular philosophy of 

banking and the marketplace. 

Do you have any views of that from a regulatory perspective or 

from a credit union perspective? 

Mr. MARQUIS. You have to balance safety and soundness with the 

issue of establishing the credit for someone who may have ruined 

their credit over time for whatever the reasons are, and you have 

to bring them back onboard in terms of mainstream financial services. But it is a higher volume business, and it has a higher cost. 

We have to balance that with making sure the financial institutions don’t cause harm to themselves by building out those portfolios too big. Delinquency tends to be higher; charge-off tends to 

be higher. So it doesn’t take many loans to offset and reduce that 

20 or 30 percent interest rate to be something in the negative category, if you are not careful. 

Mr. CARNEY. That is how you get at your 21 percent average 

without a profit being part of that, right? 

Mr. MARQUIS. So far. And we have allowed them to charge up 

to 28 percent, and up until now, they haven’t had to do that. They 

are crawling before they walk and trying to manage that business 

and determine where the break-even points are in that business. 

Mr. CARNEY. Really quickly, there was some mention earlier 

about debit interchange and the Card Act. Do you have any impression or any idea of the unintended consequences of, say, the 

Card Act, in terms of access to credit for the underserved consumer? 

Mr. MARQUIS. I am not sure the two subjects are exactly related, 

but at the end of the day, financial institutions, especially credit 

unions, are not in business to make a profit, but they have to build 

adequate capital. There are only several ways to make money: you 

can charge more interest on loans; you can break even on fee structures or charge a little more for fees; you can reduce your costs of 

funds; and you can reduce your expenses. 

At the end of the day, those are all finite things that you have 

to balance out in terms of what does it take that organization in 

their business model to come out at the end of the day that they 

are not losing money. 

Mr. CARNEY. Thank you. 

I see my time has expired. 

Chairwoman CAPITO. Thank you. 

Mr. Hinojosa, for questions? 

Mr. HINOJOSA. Chairwoman Capito, thank you for holding this 

important and very timely hearing. I commend all that you and 

35 

Ranking Member Maloney do to improve the financial literacy 

rates of all those residing in the United States. 

Before I ask my questions, I think all of us here today should be 

aware of some of the following facts. I will just give three or four. 

First, 25 percent of households in the United States, or close to 

30 million households with approximately 60 million adults, are 

unbanked. So I have concerns of that group, just as Congressman 

Scott gave earlier. 

Second, 3 in 10 adults in the United States, or more than 68 million individuals, report they have no savings. And only 24 percent 

of those adults in the United States are now saving more than they 

did a year ago because of the current economic climate. 

Third, I learned that 28 percent, or nearly 64 million adults, 

admit to not paying all of their bills on time. So it seems to me 

that personal financial literacy education is essential to ensure that 

individuals are prepared to manage money, credit, and debt. 

My first question I want to direct to Comptroller Barry Wides 

and to Deputy Director Robert Mooney. What are each of you and 

the entities you regulate doing to bank the unbanked, move the 

underbanked entirely into the mainstream financial services system, and what are you doing to reign in those predatory lenders 

that we are talking about, such as the check cashers and others 

that charge excessive interest rates? 

Mr. WIDES. Thank you, Congressman. The OCC is very involved 

with the national financial literacy efforts of the Financial Literacy 

and Education Commission. I am the agency’s representative to 

that Commission. 

One of the more interesting, and I think promising, initiatives in 

financial literacy and inclusion of the unbanked is the Bank On initiative, sponsored by the National League of Cities, in which the 

Treasury Department and the banking regulatory agencies are 

partners with this effort. The way that initiative is working is that 

cities around the country are coming up with a template of a basic 

banking product that would be offered in conjunction with financial 

literacy through local nonprofits. 

And what the banking regulators are doing is collaborating with 

these cities that are sponsoring these initiatives to bring the bankers to the table to see if they can offer a product in these markets 

that would be geared toward an unbanked individual. In many instances, it involves second chance checking accounts for people who 

might have previously been banked but left the system due to high 

fees or inability to manage an account. So these initiatives do involve a financial literacy component, and— 

Mr. HINOJOSA. Let me interrupt you. If those initiatives were implemented and they were able to have them open up a bank account, would they be covered under the FDIC just like anybody else 

on that $250,000? 

Mr. WIDES. Oh yes, yes. These are full bank accounts with 

FDIC— 

Mr. HINOJOSA. The reason I ask you—and I am glad to hear you 

say yes, because one of the things that many of our immigrants 

have is that they are afraid of not being able to get their money 

out, number one; number two, that banks may fold up and that 

they will lose their money, like they did in—back during the 

36 

1940s—1930s to 1940s. So I don’t blame them for learning from 

their parents and their grandparents about those experiences. 

And we just have too many people who could benefit by being 

banked. I would like to hear your answer. 

Mr. MOONEY. Congressman Hinojosa, thank you. The FDIC is 

very much aware of what you just stated, and first of all, we also 

want to recognize your leadership in the financial literacy field. 

Mr. HINOJOSA. Thank you. 

Mr. MOONEY. Our Money Smart program has been updated—the 

financial education program—to include issues related to Federal 

Deposit Insurance. We embarked on a public service campaign—a 

national public service campaign in several different languages—to 

build public confidence, in particular in our minority and immigrant communities as to the importance of FDIC-insured accounts, 

not only that they are safe and insured up to $250,000, but that 

we provide uninterrupted access to their financial accounts and the 

financial services in the event of a possible bank failure, and we 

have done that. Also, with that insurance and with those bank accounts come consumer protections. 

Economic inclusion, as you state, is important, and the FDIC, 

several years ago, embarked on a campaign to establish Alliances 

of Economic Inclusion, and we have done this in 14 different MSAs 

around the country, everywhere from Boston, to Baltimore, to the 

Black Belt area of Alabama, to Los Angeles, to Southern Texas, to 

Chicago, and the list goes on. In those communities, Congressman, 

we brought together banks—all the banks—nonprofits, and public 

officials to figure out new ways to reach the underserved in several 

ways: one, by offering affordable savings and checking accounts as 

well as affordable small-dollar loans; and two, possibly in many of 

these markets, affordable foreign remittance services. And in addition to small business lending, we also encourage the use of financial education programs—programs that will result in the opening 

of accounts for those who are underserved, in particular in some 

of the immigrant markets that you have talked about. 

More than 1,000 organizations and banks are part of that initiative, and we are finding very, very positive results in each of those. 

Chairwoman CAPITO. Thank you. 

The gentleman’s time has expired. 

Mr. HINOJOSA. I like your response. 

And, Madam Chairwoman, I want to comment that I have visited 

Federal Reserve Banks and others that have materials in eight languages, but are the banks actually getting any pushback from either community leaders or elected officials because we are doing it 

in languages other than English? 

Chairwoman CAPITO. If you could answer briefly, because we 

need to— 

Mr. MOONEY. I am not aware of that. In fact, our translated services are very popular with banks. 

Mr. HINOJOSA. Thank you. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Mr. Miller, for 5 minutes? Do you have any 

questions for this panel? 

Mr. MILLER OF NORTH CAROLINA. I do, for the OCC. 

37 

I am sorry. As the Chair noted, I have just kind of sprinted in, 

but I am curious about your military lending program. One of the 

great triumphs of consumer protection is what we have done in the 

last decade for servicemembers. There is a series of articles, or 

maybe just one big article in the New York Times about the abuse 

of servicemembers. Many of them were fresh out of high school, living independently for the first time, and they were being gouged 

by lenders just off the base, obviously targeting them at a very vulnerable stage of their lives. 

There was legislation introduced to do something about it, and 

the industry—the lenders who were doing it—succeeded in getting 

that postponed and having the military conduct a study. The study 

came back more strongly than they could possibly have imagined, 

and the commanders talked about how it was affecting their readiness, how was it affecting their troops, how it was affecting their 

security clearances, how they were unprepared because they were 

not sleeping at night or because all they could think about was how 

much debt they were under. And Congress set a cap of 36 percent. 

My understanding is that, what are functionally the equivalent 

of payday loans are now being offered to the military and have 

been designed in a way to avoid that Federal limitation on interest 

for our military. Is that correct? Are there loans being made to our 

military with a closed end or open end that exceed 36 percent? 

Mr. MOONEY. I am not aware of FDIC-supervised banks that are 

involved in anything approaching that. In fact, we held a conference where we highlighted the need for affordable lending to the 

military in 2006, and we partnered with the Department of Defense and military banks. And, actually, as a group at that conference, they developed a small-dollar loan template which would 

provide an alternative to high-cost payday lending and other lending that had been plaguing the military, as you have outlined. 

That template led to the FDIC’s small-dollar loan pilot program, 

where small-dollar loans were being offered— 

Mr. MILLER OF NORTH CAROLINA. What is the effective interest 

rate on those loans? 

Mr. MOONEY. In our pilot program, for the 28 banks that ended 

the program, the average rate charged was between 14 and 16 percent. The most common was 18 percent. We asked banks not to 

charge more than a 36 percent APR, and most charged well under 

that. 

Mr. MILLER OF NORTH CAROLINA. Are there any loans being 

made to servicemembers, whether open- or closed-end, that presumably would be subject to the statute, that might not be, where 

the interest rate does exceed the amount allowed by Congress in 

2006—36 percent per annum? 

Mr. MOONEY. We examined banks for compliance with those 

rules and I am not aware that there are any exceptions, but we 

could look into that. I don’t think that would be an issue with 

banks primarily. 

Mr. MILLER OF NORTH CAROLINA. Would you support or oppose 

legislation that would make it clear that those lending programs 

are subject to a 36 percent cap? 

Mr. MOONEY. I think the FDIC would have to review that. I 

wouldn’t be able to comment on it today. 

38 

Mr. MILLER OF NORTH CAROLINA. Okay. 

The Center for Responsible Lending made several observations 

about today’s hearing and suggested that any loans that the OCC 

required to comply with certain criteria, certain minimum standards that they repaid in affordable installments, and that there be 

a cooling-off period between installments, between borrowing, to 

prevent the repetitive use, which is one of the great evils of payday 

lending, that they be reasonably priced and that the cost of credit 

be expressed as the interest rate and not as penalties or fees where 

the borrower frequently has no idea what they are getting into— 

they understand an interest rate; they may not understand when 

they are being hit by penalties and fees—that they be based 

upon—that there be an ability to repay requirement for any lender, 

and that they not be paid through an automatic set-off against the 

customer’s deposits, which they said effectively is a wage garnishment and really prevents the consumer from very effectively being 

able to contest the amount being charged. 

Do those seem like reasonable limitations? Do you support those 

limitations? 

Mr. WIDES. We are very, very aware of the concerns that have 

been raised by the Center for Responsible Lending and other consumer groups about these types of products. All I can say is that 

we have received over 14,000 comments, many of which are very, 

very similar to the types of issues that you have just identified, and 

we are sifting through those comments now, as I mentioned that 

the comment period closed last month. But we are very aware of 

those issues and concerns as we look at determining how we move 

forward with this guidance. 

Chairwoman CAPITO. The gentleman’s time has expired, and I 

believe that concludes all of the questions for this panel. 

I want to thank you all. You have given very, very excellent testimony. 

I would like to request unanimous consent to submit the following letters into the record: the National Association of Federal 

Credit Unions, and VantageScore. Without objection, it is so ordered. 

And I will dismiss the first panel and call up the second panel. 

Mr. RENACCI. [presiding]. At this time I would like to call up our 

second panel of witnesses. I will introduce them individually for the 

purpose of giving a 5-minute opening statement. 

The first, Ms. Gerri Guzman, is the executive director of the Consumer Rights Coalition. 

STATEMENT OF GERRI GUZMAN, EXECUTIVE DIRECTOR, 

CONSUMER RIGHTS COALITION (CRC) 

Ms. GUZMAN. Thank you. 

To the chairwoman and members of the subcommittee, I want to 

thank you for including us in this conversation. Your work and 

ours impacts the daily lives directly of consumers, so we should be 

working together to first do no harm, and then improve both their 

circumstances and their options. 

I am Gerri Guzman, the executive director of the Consumer 

Rights Coalition, or CRC. CRC is a nonprofit consumer-based orgaVerDate Nov 24 2008 18:43 May 24, 2012 Jkt 072606 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\72606.TXT TERRIE
39 

nization dedicated to ensuring that Americans have increased access to credit. 

I am here today on behalf of more than 200,000 of our members 

who are consumers of alternative or nonbank financial services. 

Our members have traditional bank accounts, but they don’t always have a financial safety net. They want to preserve and expand access to a full range of short- and intermediate-term credit 

options and other basic financial services. 

Millions of Americans, as you know, are coming up short. They 

are struggling to make ends meet for several months at a time or 

they are dealing with a financial shock like a reduction in work 

hours, a medical emergency, or a broken down car or appliance. 

Millions of consumers don’t have rainy day savings accounts to 

get them to the next paycheck or manage the unexpected. They 

may not have credit available on their credit cards or family to 

turn to for a few hundred dollars in order to get through a tough 

time. 

As stated in studies by other panelists, the previous, in addition 

to those reports, there was a second study that found that 64 percent of Americans don’t have $1,000 on hand in case of emergency. 

If these consumers choose to go to a traditional bank for a loan, 

the vast majority of traditional banks and credit unions could not 

give them a typical $300 loan needed, to say nothing of $1,000 or 

$2,000. 

As a result, today almost 20 million Americans are turning to 

nonbank financial products, like check cashing, installments, payday, and pawn loans. The alternative to traditional banks is quickly becoming the mainstream. 

I know firsthand that traditional bank products don’t always 

offer a realistic solution for people without a significant financial 

cushion to help absorb the unexpected. I relied on a payday loan 

when I was in danger of losing my home. It was simple, transparent, less expensive than bouncing a check or making a late payment, and I knew that it would not further damage my credit rating. 

Short- and intermediate-term loans are easily and conveniently 

available from alternative lenders in some States. Unlike most traditional banks, stores are located in minority neighborhoods. They 

are open at times the services are needed and the process is understandable, quick, and easy. Employees are likely to speak the language of the local residents, and in addition, these short-term loans 

will not ruin people’s credit ratings like bouncing a check or failing 

to make a payment would. 

Short-term credit options are currently regulated at the State 

level, and regulations vary in many States: the fees; the types of 

loans; the terms that are offered. Research from the Federal Reserve and others indicates that States that have eliminated or restricted credit options have actually done more harm than good. 

For example, when the State of Washington restricted the number of loans an individual could take out, regulators found that it 

had the effect of driving consumers to more expensive options, further damaging their credit. Studies also found that consumers in 

North Carolina, Georgia, and Oregon were hurt by payday loan 

40 

bans that drove them to bounce more checks, incur more late fees, 

and ultimately file more personal bankruptcies. 

Unfortunately, I hear from consumers all the time that they no 

longer have access to short-term credit because of restrictions in 

their States. They are now spending more on overdraft, bounced 

check, late fees, and in many cases banks are threatening to close 

their accounts. 

The fact is that people will always come up short. If access to one 

product is eliminated consumers will seek out another. And unfortunately, at times it is not a viable option that works for their 

household. 

Seventy-three percent of banks are aware of the significant 

unbanked or underbanked populations in their market, but less 

than 18 percent of banks have identified expanding services to this 

group. In listing the reasons why, they list profitability issues, regulatory barriers, and fraud concerns. 

A few banks are, however, beginning to compete in the small-dollar, short-term lending market. This is very good. The more options, the better. That will allow my consumers to make choices, 

weigh out those options, and certainly, ultimately choose the option 

that is best for their household. 

Laws need to further change, though, to open up the market to 

more competitors. We would like to see nonbank financial service 

providers already trusted in the communities throughout the 

United States have the opportunity to provide more and better 

credit services to underserved communities. 

All Americans need responsible credit options in order to build 

personal financial records, healthy credit ratings, move up to the 

traditional banking system, and ultimately build their own personal wealth and wealth for their neighborhoods and communities. 

Thank you. 

[The prepared statement of Ms. Guzman can be found on page 

72 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness will be Melissa Koide, vice president of policy, 

Center for Financial Services Innovation. 

STATEMENT OF MELISSA KOIDE, VICE PRESIDENT OF POLICY, 

CENTER FOR FINANCIAL SERVICES INNOVATION (CFSI) 

Ms. KOIDE. Thank you, Chairwoman Capito, Vice Chair Renacci, 

and Ranking Member Maloney. I am Melissa Koide, the vice president of policy at the Center for Financial Services Innovation. On 

behalf of CFSI, I appreciate the opportunity to be here today as a 

witness. 

CFSI, for those of you who may not know us, is a nonprofit organization in its 8th year of providing leadership, research, and insights on the financial services needs of underbanked consumers. 

Our vision is to see a strong, robust, and competitive financial services marketplace where the diversity of consumers’ needs are met 

with a variety of financial products and services that are transparent and reasonably priced. 

We believe well-structured products can help consumers address 

their short-term credit needs and also build positive credit histories, which we all realize are not only critical for long-term asset 

41 

goals, but more immediate needs: employment; housing; and insurance. In 2008, we conducted a study—a nationally representative 

study—and found that almost one-third of unbanked or underbanked consumers had borrowed for short-term needs in the prior 

12 months. 

While the reasons for their borrowing varied, over a third cited 

the need to pay bills and to manage their expenses as their motivation for seeking out the credit. This result suggests that in addition 

to helping address emergency expenses, which we typically think 

about when we think about small-dollar credit, that credit is being 

used as a method to manage expenses, smooth income at times. 

And that is especially relevant in today’s context. 

Looking at the supply side of small-dollar credit, we pay quite a 

bit of attention to some of the innovations in this area. Over the 

past half-decade, we have seen a handful of new and modified products that are emerging to better meet the demands of consumers 

with more consumer-friendly structures. 

Examples of these innovations include products that offer flexible 

loan terms, that use a variety of data to better underwrite and assess consumers who may have insufficient or poor credit histories, 

that link credit with other products and services, including transaction products and savings, and that also offer credit products intentionally to help consumers build or repair their credit records. 

But even with these promising trends, there are significant challenges to the growth of well-designed, small-dollar credit products, 

and there is without question concerns about products that are in 

the market today. Many, if not most of today’s products are shortterm, often with repayment due in a matter of weeks or when the 

next paycheck arrives. Many products draw the full repayment directly from the consumer’s account, which on the one hand, we recognize helps to reduce the likelihood of default, but on the other 

hand, leaves some consumers with little left except the option to 

borrow again. 

Regulatory scrutiny of the product is warranted, but we also 

need additional research to shed light on how these products can 

be designed to avoid overindebtedness and to help consumers successfully manage their credit while also ensuring product sustainability. 

On the supply side, it is important, also, to call out the challenges that are constraining the growth of high-quality products. 

Those challenges include capital constraints, depending on the type 

of provider. They include regulatory inconsistency as well as regulatory uncertainty. It also includes negative stigma associated with 

the products themselves, and insufficient underwriting in order to 

assess risk. 

I think with a few ground rules and a level of regulatory consistency, we will see more and better small-dollar credit products 

emerge that help consumers safely access credit, reduce the price, 

and allow for product diversity and innovation. 

With respect to our policy recommendations, we believe policymakers should support the Consumer Financial Protection Bureau, 

as it is the appropriate Federal regulator to create and ensure consistent rules and balanced rules that take into consideration both 

the consumers using the products and the providers offering them, 

42 

and that would be regardless of the type of provider that is offering 

the credit, looking at both the banks and the nonbanks across-theboard. As the Federal consumer protection regulator that will have 

rule-writing authority over consumer protection rules, and for 

many providers, supervision and enforcement authority over those 

providers, the CFPB will develop a deep knowledge about the range 

of small-dollar credit lenders and the products as well as a rich understanding about the consumers who are using these products. 

This, I believe, will lead to more informed roles that are coordinated across the Federal regulators as well as the State regulators 

that are responsive to the different business models and that are 

deeply attuned to the consumers using the products. 

It is also worth noting the CFPB’s mission, which I think we 

tend to sometimes forget or not necessarily focus on. As defined in 

the Act, the CFPB is explicitly required to recognize its duty to ensure consumers have access to financial products and services. It 

also, of course, has the duty to ensure that those products are fair, 

transparent, and competitive. 

Before I conclude, I would like to also point out that we offer a 

set of consumer protection recommendations detailed in our written 

testimony that we think will help to ensure that these products, regardless of the type of provider, are prudently provided, that they 

are manageable for the consumer, and that they are helping consumers meet their short-term needs. 

Thank you, Chairwoman Capito, Vice Chair Renacci, Ranking 

Member Maloney, and the other subcommittee members. I look forward to your questions. 

[The prepared statement of Ms. Koide can be found on page 74 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Ryan Gilbert, chief executive officer, 

BillFloat, Inc.. 

Welcome. 

STATEMENT OF RYAN GILBERT, CHIEF EXECUTIVE OFFICER, 

BILLFLOAT, INC. 

Mr. GILBERT. Chairwoman Capito, Ranking Member Maloney, 

and members of the subcommittee, good morning. My name is 

Ryan Gilbert and I am the CEO of BillFloat, based in San Francisco, California. It is a distinct honor to be here today speaking 

before you as an immigrant who has been in America for 13 years, 

discussing the issue of consumer credit. 

Our company was founded in 2009 with the backing of PayPal, 

Silicon Valley venture capital firms, and angel investors. We represent a new generation of financial services providers that embrace technology and innovation to offer consumers hope. 

Customers come to BillFloat when they need more time to pay 

recurring monthly bills. The majority are mothers balancing a tight 

family budget. 

Our short-term credit products can only be used to pay bills. This 

includes cable bills, utility bills, phone, or insurance bills, the exact 

kind of sorely needed short-term credit options that have been 

abandoned by many banks. 

43 

We offer our services in partnership with some of the largest billers in the country. These companies offer BillFloat to their customers as an alternative to late fees and service interruption. 

Central to our product model is our belief in alternative data, including customers’ bill payment experience, cash flow, borrowing 

habits, and household expenditures. We are raising the technology 

bar with new algorithms that evaluate the consumers’ ability to afford these products and to offer safe, feasible credit alternatives to 

consumers whose best option often is high-interest, short-term 

loans or simply not paying their bills. 

Meanwhile, the too-big-to-fail banks are, simply put, too scared 

to lend. 

A recent Federal Reserve Bank of New York report cited that $1.1 trillion of consumer credit has been removed from the market 

since Q3 of 2008 to Q2 of 2011. This retraction of credit flies in the 

face of initiatives from many Federal agencies, including the FDIC, 

to maintain access to loans and other viable financial products for 

underserved consumers. 

At the same time, demand for consumer credit has grown significantly, influenced by several trends, including a population increase and declining household income. We have heard often today 

of the recent paper from the National Bureau of Economic Research that found that almost half of the Americans surveyed considered themselves to be financially fragile. These consumers responded that they could not access $2,000 to cover a financial 

emergency, even if given a month to do so. 

The simple truth is that underserved consumers face a bleak 

landscape when a sudden expense derails even a responsible family 

budget. We do feel that there is hope. 

BillFloat represents a new breed of financial services provider 

that includes either start-up companies, like Kabbage, and On 

Deck Capital, which make loans to small businesses also suffering 

from a lack of credit; Square, out of San Francisco, that enables the 

long tail of merchants to be able to access merchant processing infrastructure, previously the domain of large, established corporations. And we share technology and market-driven approaches that 

are highly consumer-centric. 

None of us are asking for Federal funding, loan guarantees, or 

any other handouts. There is, however, one thing this subcommittee could do, and that would be to consider H.R. 1909, introduced by your colleague, Representative Joe Baca. This bill, the 

FFSCC Charter Act of 2011, would establish a much-needed platform for financial services innovators to flourish and serve the underserved, and I believe this will have an immediate and hugely 

positive impact for many Americans and the economy as a whole. 

Today, one of the most difficult challenges facing any financial 

services innovator is accessing the critical banking infrastructure 

needed to deliver our service. We are frequently beholden to banks 

to market our products, from credit offerings to prepaid cards. It 

has been our collective experience, however, that the same banks 

that are not serving underserved consumers are not supporting 

technology and financial services innovators. 

With the charter, there will be a platform for nonbank providers 

to operate nationally. The pro-consumer requirements of the bill 

44 

are very, very clear, including clear standards for credit disclosure, 

account access, financial literacy, and the breadth of product offerings. 

There is also a mission that each charter-holder will have to observe, which is to provide an array of financial services to the 

underbanked, and unbanked, and consumers with low credit scores. 

And most important, non-delivery of these services will mean noncompliance. I haven’t seen too many terms like that in many bills. 

I think consumers have spoken clearly. They want access to convenient service from trustworthy sources, and by removing reliance 

on third-party banks and enabling national business and operating 

plans, many of these service providers can thrive and offer safe, affordable, and more convenient alternatives as opposed to overdraft 

protection, high interest loans, and credit card late fees. 

Once again, I appreciate the opportunity to speak with you 

today, and I would be very happy to answer your questions. Thank 

you. 

[The prepared statement of Mr. Gilbert can be found on page 66 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Michael Grant, president, National 

Bankers Association. 

Welcome, Mr. Grant. 

STATEMENT OF MICHAEL A. GRANT, PRESIDENT, NATIONAL 

BANKERS ASSOCIATION 

Mr. GRANT. Thank you very much, Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee. First, 

Madam Chairwoman, I owe you an apology. At the end of my statement, you have been downgraded from ‘‘Madam Chair’’ to ‘‘Mr. 

Chairman,’’ so I want to apologize for that. 

And second, I have to leave after this statement because I have 

another prior engagement I have to make. Thank you very much 

to the whole committee. 

I represent the National Bankers Association. It is a consortium 

of minority banks in the country, and those who have studied our 

organization and the banks that we represent know that we are 

representing the heart of this problem that we are having in our 

country. The urban areas of our country were hardest hit by this 

ongoing financial crisis, so we are super sensitive to the issue that 

we are discussing today. 

Specifically, I would like to address the subcommittee’s desire to 

better understand credit products that are available for consumers 

who cannot always access more traditional financial institutions’ 

products and services. 

In a nutshell, the underbanked and the unbanked, usually with 

low to moderate incomes, continue their historical struggle to access credit for a number of reasons. The number one reason is that 

many of these individuals create such high risk for lending institutions that they do not meet the minimum underwriting requirements imposed by the regulators of traditional financial institutions. 

Madam Chairwoman, I picked one of our banks as an example 

of how these banks are trying to address this problem of providing 

45 

credit for folks in the low- to moderate-income range, and actually, 

we chose Citizens Trust Bank of Atlanta, Georgia. It is kind of a 

microcosm. It is an urban area, and the unemployment rate is 

high, and so forth and so on. 

And basically, in 2008 the bank tried to implement this smalldollar loan program to see how it would work in 11 branches and 

three different markets: in Atlanta; Columbus; and in Birmingham. 

Although the bank’s intention was to meet the pressing economic 

needs of the consumers in this market, a 13 percent default rate 

rendered the program a costly failure. 

With comparative lenient underwriting criteria, the bank sought 

to help consumers with housing payments or car payments or other 

financial needs with small loans that ranged from $500 to $1,500. 

At the beginning of the program, the following underwriting criteria were established: a score—a FICO score of only 500; allowed 

a higher debt-to-income ratio, along with a $48 document preparation fee, which was financed into the loan document; 12-month 

same residence; credit report could not have outstanding liens or 

judgments; allowed for collection items on the report; must provide 

6 months’ income from the same employer; 2 years discharged from 

bankruptcy that is Chapter 13; no Chapter 7 bankruptcy was allowed. 

The result was still a 13 percent default rate, which was subtracted from the bank’s loan loss reserves. Today, the bank provides this small-dollar program in only one of its branches, and the 

requirements are now more rigid. Interestingly enough, that 

branch is in Green County, Alabama, one of the poorest counties 

in America. The default rate is near zero. 

The only recommendation I would like to make today, Madam 

Chairwoman, is that if Regulation E were modified to allow banks 

to debit borrowers’ bank accounts, the bank’s risk would be mitigated and borrowers would probably act more responsibly. Having 

direct deposit accounts would also help to ensure that lenders could 

make timely payments. 

But the largest issue, Madam Chairwoman, and subcommittee 

members, is the issue of the cost of risk, and I haven’t heard that 

kind of analysis today. How can we decide whether it is predatory 

lending or banks—how can we decide whether a loan—the cost of 

that loan—is excessive if someone hasn’t done the calculus to decide, how do you cover high risk, you know? If you want to make 

a loan to someone who has very poor credit and maybe has not had 

a history of being consistently employed for more than a year at 

a time, we need to find out—we know the need is great. The credit 

needs of the poor are great. 

But we have to be fair and say, listen, what constitutes excessive? The cost of these loans can be very high. So the committee 

could wrestle with the issue of what constitutes excessive payment 

for these loans, and I think we could get to the heart of the issue. 

Thank you, Madam Chairwoman. 

[The prepared statement of Mr. Grant can be found on page 70 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Dr. Kimberly Manturuk—did I say that correctly? 

46 

Ms. MANTURUK. It is ‘‘Manturuk.’’ 

Chairwoman CAPITO. ‘‘Manturuk’’—with a name like ‘‘Capito,’’ 

you would think I would get that right—research associate, University of North Carolina Center for Community Capital. 

Welcome, Doctor. 

STATEMENT OF KIMBERLY R. MANTURUK, RESEARCH ASSOCIATE, UNIVERSITY OF NORTH CAROLINA CENTER FOR 

COMMUNITY CAPITAL 

Ms. MANTURUK. Thank you. 

Good afternoon, Chairwoman Capito, Ranking Member Maloney, 

and distinguished members of the subcommittee. I am Kimberly 

Manturuk, from the Center for Community Capital at the University of North Carolina in Chapel Hill, and I am honored to have 

the opportunity to share some thoughts and research on credit options available to underbanked and unbanked American households. 

This hearing comes at a time when families of all income levels 

are struggling with financial insecurity and need all the help they 

can get rebuilding their financial lives. North Carolina has long 

been at the forefront of promoting a financial services environment 

in which both consumers and lenders prosper, and our center has 

developed a body of research on credit options available. In addition to summarizing this research, I will also discuss several 

emerging and innovative products that meet consumer demand for 

credit in ways that are both affordable and sustainable. 

First, our research indicates that most lower-income families 

have multiple options available when facing an immediate financial 

shortfall. Very few families rely on a single coping strategy alone. 

Among people who use credit to handle their emergencies, mainstream products such as credit cards and bank loans were used 

more commonly than alternative products, such as pawn shop loans 

or auto title loans. The use of multiple options suggests an elaborate level of management where consumers are layering in resources in some order of preference. However, it also suggests that 

none of these products are currently fully meeting consumer needs. 

Second, we have found that consumers who do use alternative 

credit products were attracted to them because the loans were private, fast, and above all, easy to obtain. People cited the short application process, lack of a credit check, and guaranteed acceptance 

of such loans. 

When we asked former payday loan borrowers whether they 

thought they would have been able to get a loan if there had been 

a credit check, they generally thought not. However, there was also 

overwhelming agreement that these products did not sufficiently 

meet their needs. 

In our research with payday loan borrowers, we found strong 

support for small-dollar credit with a lower interest rate. The 

former payday loan customers we spoke to, including those who 

wanted to retain the option to take such loans, wanted a lower 

APR, a longer amortizing repayment term, as well as limits on renewals and the amounts borrowed. 

Current industry best practices do not begin to approach the requirements that our focus group’s participants wanted. There are, 

47 

however, some emerging products in the small-dollar consumer 

credit space which offer reasonable terms and conditions while retaining profitability for lenders. I would like to conclude today by 

highlighting a few of these products. 

First, a product called FlexWage works with employers to give 

workers access to a payroll card with a linked salary advance feature, an alternative to the traditional payday loan. Through the 

WageBank product, the company makes available wages that have 

been earned but not yet paid. 

Customers are charged a flat convenience fee for the pre-disbursement of earned wages. There is no loan, and therefore, nothing to repay. 

For consumers who need to borrow more than their already 

earned wages, Workers Choice USA allow employees to borrow up 

to 50 percent of their monthly salary at a competitive interest rate. 

The lender remains profitable because there are low underwriting 

costs associated with this loan since most of the borrower’s information has already been verified by the employer. Repayment is 

done via payroll deduction over time and there is no cost to the employer to offer these loans. 

Finally, in 2001 the North Carolina State Employee’s Credit 

Union introduced a 12 percent APR product called the salary advance loan. Over the past 10 years, the credit union has made over 

5 million loans and lent a total of over $2 billion. They have had 

an average annual charge-off or bad debt expense of less than 1 

percent. The credit union calculates that it is saving members an 

average of $33.6 million per year in payday loan fees. 

In conclusion, our research indicates that there is strong demand 

for small-dollar consumer credit that is ill-served by existing products, such as payday loans, credit cards, or bank loans. Consumers 

want credit that is affordable, repayable, and closed-ended. 

This promise is found in the FDIC’s affordable small-dollar loan 

product guidelines, issued in June 2007, which calls for FDIC-supervised financial institutions to promote consumer credit products 

with an APR not to exceed 36 percent and amortizing repayments. 

The guideline also recommends underwriting for ability to repay, 

incorporating a savings component in the product, working with 

other organizations, and providing an avenue for financial education. 

We encourage lawmakers to promote policies which encourage 

these types of loans as well as to continue to encourage lenders, 

particularly non-depository institutions, to better leverage emerging technologies to increase consumer access to low-cost credit options. 

Thank you for your time. 

[The prepared statement of Dr. Manturuk can be found on page 

82 of the appendix.] 

Chairwoman CAPITO. Thank you. 

And our final witness is Ms. Ida Rademacher, vice president, policy and research at CFED, which stands for Corporation for Enterprise Development. 

Welcome. 

48 

STATEMENT OF IDA RADEMACHER, VICE PRESIDENT, POLICY 

AND RESEARCH, THE CORPORATION FOR ENTERPRISE DEVELOPMENT (CFED) 

Ms. RADEMACHER. Thank you. 

Thank you, Chairwoman Capito, and thank you, Ranking Member Maloney, and members of the subcommittee. On behalf of the 

Corporation for Enterprise Development, I appreciate, as well as 

the others here, the opportunity to present testimony today on this 

important subject. 

The Corporation for Enterprise Development, or CFED, is a 32- 

year-old economic nonprofit that fosters social innovations to build 

wealth in low-income communities and for low-income families. We 

see access to high-quality credit as a fundamental tool in the effort 

to help households build wealth, but it is a tool that must be used 

with great care and with great intention, and the overwhelming 

majority of evidence in recent years shows that while there are 

many, many fundamental barriers to financial wellbeing that 

American families are struggling with today, some of the research 

on debt-to-income ratios shows that access to credit is actually not 

probably the top priority barrier that families are struggling with 

in this case. In fact, the proliferation of alternative credit products 

and accumulated debt is actually a large part of the problem. 

Even a cursory review of recent data on the status of the American household balance sheet puts us—there is perspective—puts 

some perspective on this issue. Simply put, Americans are unemployed, underemployed, and overleveraged. We have a consumer 

credit problem in this country for sure, but a lot of the problem is 

inadequate access to high-quality and affordable credit, not credit 

in general. 

We are literally drowning in debt. Just last week, the company 

CardHub.com published its Q2 2011 Credit Card Debt Study, showing that consumers accumulated $18.4 billion in new debt in the 

second quarter of 2011. That was a 66 percent increase over the 

same quarter in 2010, and a 368 percent increase over the same 

period in 2009. 

Couple this information with what we know about the increasing 

ratio between household debt and income. Economist Edward Wolff 

discussed the explosion of debt-to-income ratios in his most recent 

analysis of household economics. Middle-income households’ debtto-income ratios were about 67 percent back in the mid-1980s; they 

rose to 100 percent debt-to-income ratios in 2001; and in 2007, they 

were at 157 percent. 

He further concluded that the debt buildup, to Ms. Koide’s point, 

was for normal consumption, not enhanced consumption. And findings from the 2009 FINRA Financial Capabilities Study, administered by the Financial Industry Regulatory Authority Investor Education Foundation substantiates the finding, with nearly half of 

survey respondents reporting facing difficulties covering monthly 

expenses and paying bills. And the majority of respondents didn’t 

have any type of rainy day funds set aside for financial emergencies. 

With inadequate incomes and inadequate savings, the only option for millions of Americans is to turn to credit alternatives to finance basic consumption, but our own analysis of consumer credit 

49 

scores suggest that over 60 percent of those consumers have 

subprime credit scores, so the credit product options that are available are often sub-optimal, and the most vulnerable households 

who can least afford additional financial burden end up paying a 

premium for access to the credit they need simply to make ends 

meet. 

The ultimate lens through which we think we should be looking 

at any financial product or policy is relatively intuitive and 

straightforward: Does the product help a consumer improve their 

financial situation long-term or does it make their financial situation worse? A growing body of evidence shows that many of the 

short-term alternative credit products that are available in the 

market for cash-strapped consumers today with either thin credit 

files or no or low credit scores don’t pass this fundamental principle 

of ‘‘do no harm.’’ 

Less than 2 percent of payday loans—according to recent research by the Center for Responsible Lending—went to borrowers 

with the ability to repay in the first cycle of getting that loan. And 

in fact, the executive director of TitleMax himself, in testimony, 

stated that the average customer with a car title loan renews that 

loan 8 times. 

CFED’s Assets and Opportunity Initiative provides some indepth information at the State and local levels on the kinds of policies that can help households increase financial stability and build 

and protect assets. We support the regulation of short-term consumer lending products. Small-dollar installment loans, when responsibly regulated, can be a very safe product, but we recommend 

capping the interest rate charged on loans, such as payday loans, 

car title lending, and small-dollar installment loans. 

To date, 10 States have banned or capped all three types of predatory loans I just mentioned. That includes the short-term lending 

and basic consumer protection laws. Fourteen States do not effectively regulate any of the three predatory loan products. And nine 

States include short-term lending in their basic consumer protection laws. All other States protect consumers against some, but not 

all types of short-term loan products. 

So what can and should the Federal Government do? I will just 

leave you with three broad recommendations to consider. CFED 

feels these would go a long way toward helping families truly regain their financial footing. 

First, protect consumers from financial products that exacerbate 

financial distress. We absolutely support the Consumer Financial 

Protection Bureau’s mandate in that regard. 

Second, help families save. Credit and emergency savings are actually substitutes at this level of the household, so helping families 

learn how to save and incentivizing that savings gives them another option when emergencies happen. 

Finally, help families build good credit. I will finish where I 

started: The quality of credit available to families is all-important. 

We do believe that with full file reporting, as many as 120 million 

consumers could build and improve their credit score, and we 

should really help to end the regulatory uncertainty and provide 

permission to utility and telecom companies to report on-time payment to credit reporting agencies, to that end. 

50 

Thank you for your time. 

[The prepared statement of Ms. Rademacher can be found on 

page 151 of the appendix.] 

Chairwoman CAPITO. Thank you. 

I am going to begin the questioning with Mr. Gilbert. How does 

an individual customer find out about BillFloat? Is it on the Internet, or— 

Mr. GILBERT. Thank you for the question. They are able to access 

us through our Web site at BillFloat.com, but our strongest point 

of messaging is through the billers themselves. 

Chairwoman CAPITO. So that would be the utilities, or the— 

Mr. GILBERT. The phone companies, insurance companies, the existing entities that have relationships with these customers who 

get the phone call in the call center to say, ‘‘My bill is due today 

or in a week. I won’t be able to pay it on time. Can I get more time 

to pay?’’ 

And they will often get a response from the call center reps that, 

‘‘We are not in that business. You have to go and find credit from 

someone else.’’ Now, with BillFloat as a payment option in those 

workflows, at least there is a solution that the utility companies 

know comes from a reputable company with terms and conditions 

that are very clear to consumers. 

Chairwoman CAPITO. Do you have any challenges offering services across State lines? 

Mr. GILBERT. Certainly, it is a challenge. We are dependent on 

banks, based on their license and regulations, and also State laws 

for direct lending we are doing ourselves. Compliance across State 

lines means that we have to increase our costs of goods for product, 

which does impact our product overall. 

Chairwoman CAPITO. So if you forward somebody’s power ill—say 

it is $300—then do they pay you within the 30-day period, what 

interest do you charge, and— 

Mr. GILBERT. Our product is a 30-day product. We charge an interest rate of 36 percent APR based on the standards put forth 

from the FDIC small-dollar loan template, which we use as a 

guideline for our business as well. 

Chairwoman CAPITO. Are there other competitors in this space 

with you? I am sure there are. 

Mr. GILBERT. I believe consumers have a lot of credit options that 

they could access in order to pay bills. No one has taken credit options specifically to address this problem of bill payment. 

What drove us into this space was the data point in the 2009 

FDIC study which showed that 47 percent of the times consumers 

get high-dollar loans, it is to pay bills. So we took the approach, 

‘‘Let us build a product to help bill payment.’’ 

Chairwoman CAPITO. I am interested in the innovation because 

I think all of you all have remarked that to have a competitive 

marketplace in this arena is extremely important for the consumer 

to make sure that they can—hopefully give them some sort of reasonable rates and reasonable parameters for them to be able to pay 

this back. 

I have a question for Ms. Koide. You mentioned the CFPB in 

terms of regulating these products, and how important that you 

feel that is. But, for instance, we just had the FDIC testify that 

51 

they are regulating in some of this space, too. Do you think that 

there is any—not conflict there, so much as a potential for, ‘‘They 

are regulating, so we don’t need to look?’’ 

Ms. KOIDE. Excellent question. I think right now it has been interesting to see how the regulators are stepping out and focusing 

on certain products, under the auspices of safety and soundness, 

even if it looks like a consumer protection matter or a consumer 

protection matter under the auspices of safety and soundness. I 

think those things are inextricably linked; it is hard to pull them 

apart. 

I think the fact that we don’t have a CFPB that is in full standing with a Director in place right now leaves a bit of a void, and 

so I am encouraged to see the regulators focus on some of these 

products and realize that there is more that needs to be done to 

understand what is underneath them and what are the products 

that are coming out. 

I also realize that having this new bureau, once it is fully standing, is going to create another regulator that is going to take positions. I think it has been very explicit in the sort of formation of 

the CFPB and many of the discussions that have happened around 

it how critical it is going to be that the entity is conferring, developing rules, guidance, best practices in coordination with the other 

regulators, because I think you are hearing innovation talked about 

a lot here. What is underneath a lot of that is that it is not just 

one entity that is a part of the provision of the services; it is, perhaps, a depository who sits in the back and does the processing or 

provides the capital, that there are other players in that product 

offering, and we have to have a regulatory system that recognizes 

that complexity and coordinates around it. 

Chairwoman CAPITO. But at the same time, I think some of the 

barriers that were talked about by one of the witnesses is capital— 

the regulatory inconsistency. I am not sure we are solving this 

problem, but I will move on. 

I am really curious to know, and I wanted to ask the other panel 

this—this will be my final question; I am back to the Internet 

again—we know that financial literacy is extremely important, but 

we know that Internet access and capabilities has really grown exponentially, and certainly with the generation behind me, it will be 

a way of life for all. How do you see that as—do you see that as 

a plus or a minus for the underbanked and unbanked population, 

in terms of trying to reach capital? And I will ask the three of you 

all over there. 

Ms. GUZMAN. I think consumers are demanding more options 

based on convenience and accessibility. We find that, of course, like 

you, Madam Chairwoman, the younger generation is using strictly 

technology. They are using their phones as their checking account; 

they are wiring money via an iPhone. 

However, other options need to be available because there are 

different markets, nonbank as well as traditional banking. And 

then, of course, we need to look at the variety of products and ensure that at all times, our consumers are protected. I think all 

these will make the availability of access to cash when we need it 

just more convenient and available so that people don’t find themVerDate Nov 24 2008 18:43 May 24, 2012 Jkt 072606 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\72606.TXT TERRIE
52 

selves spiraling out of control when it comes to their finances and 

maintaining their obligations. 

Chairwoman CAPITO. I am going to move on, because I am kind 

of violating my own rule here. 

So, Mrs. Maloney? 

Mrs. MALONEY. Thank you. This hearing certainly points out 

that the unbanked population is growing, the need is growing, and 

the challenge is there. Quite frankly, I was not aware of the FDIC’s 

model program or the OCC’s efforts in this area, and the programs 

that came forward today, such as BillFloat, FlexWage, salary advance on credit cards, and other things that you talked about. 

I think at the very least, this committee or some regulator should 

get out where all these programs are so consumers can know where 

they are to go for these services. I think that there is a growing 

need; there is no question about it. 

And there have been several legislative proposals that have been 

put forward, one, actually, by my colleague, Mr. Baca, today—I was 

not aware of it until he told me about it today—which would create 

optional Federal charters for nonbank financial institutions. And 

under this proposal, the OCC would be the principal regulator and 

State laws in the area would be preempted. 

Can the members of the panel comment on the merit of this proposal? Anyone? All of you? We will start at this end and go down 

the line. 

Ms. Rademacher? 

Ms. RADEMACHER. Yes, thanks. So, I think, as I mentioned, 

States are— 

Mrs. MALONEY. I can’t hear you. 

Ms. RADEMACHER. Thank you. States are, in terms of this policy 

space, out in front addressing these issues. A lot of them are on the 

ground seeing what is happening with consumers in the short-term 

lending space. 

I think it would be a real shame for a Federal charter process 

to create a way around some of—create a new type of ceiling that 

is actually, perhaps—and I don’t know the details of it—if it is 

lower than where the States have already gone to protect their citizens, I think that would be something that we would want to look 

at very closely before we said much. I do think that to the point 

of coordinating efforts, understanding that this is a very complex 

marketplace and growing more complex every day, being able to coordinate and regulate with some consistency and open communication is imperative, so a sense of some piece of this moving back to 

the OCC but actually serving in a space where there are multiple 

types of financial institutions, it raises some questions for me, and 

I would want to look at that more closely. 

I certainly think that, at the very least, nothing that happens 

should preempt the places where States have gone with some of 

the ways they are trying to protect their consumers at the State 

level. 

Mrs. MALONEY. Ms. Manturuk? 

Ms. MANTURUK. Thank you. 

We haven’t done any research specifically looking at preemption 

effects or what they would be in the consumer credit space. I can 

say, within North Carolina we have a long tradition of pretty rigVerDate Nov 24 2008 18:43 May 24, 2012 Jkt 072606 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\72606.TXT TERRIE
53 

orous regulation of consumer credit, and there is pretty strong research evidence that the regulations that we have in place right 

now are meeting consumers’ demands. 

We just finished doing some research looking at finance company 

lending, which is subject to an 18 percent cap above a certain level 

and a 36 percent cap at $3,000 and below. And our research found 

that industry in North Carolina, with the current regulations, is 

profitable for lenders and is also meeting consumer demand. So I 

would have to agree that any regulation which would preempt 

what we already have that is working for us would be something 

to think very carefully about. 

Mrs. MALONEY. Ms. Guzman? 

Ms. GUZMAN. I like the idea of having a balance for consumers 

of a regulated option that protects consumers, offering more expanding access to options that work for them and allowing them 

to make choices for their own household. Unfortunately, well-intended legislation in States has had very adverse outcomes for my 

consumers. I constantly hear, especially in the States where they 

have regulated—put a ban or a cap on the amount of times, etc.— 

that they have been forced to use the more expensive bank option 

that has negatively impacted their credit, which is what they are 

trying to avoid to begin with. They are trying to get back on their 

feet. 

And so, I have to really question some of the regulations in some 

States, and certainly at this time we are looking at the Federal 

Government to help us protect our consumers, yet expand options. 

Thank you. 

Mrs. MALONEY. Mr. Gilbert? 

Mr. GILBERT. Thank you, Congresswoman. 

One of the biggest challenges that I have in running my business 

is getting banks to work with me in order to offer my products. 

When colleagues back in the startup world heard that I was going 

to be testifying this morning, they started inundating me with emails about my bill. I responded to them, ‘‘It is not my bill.’’ I 

heard about this bill for the first time back in May, and I think 

it is a great bill because it can allow entrepreneurs to get on with 

their business. 

I also believe that uniformity will be very much helpful to consumers, and that uniformity can be achieved in a way that is also 

very respectful of the rights of States and State caps. 

Mrs. MALONEY. My time has expired, but if you would like to 

give your point of view, Ms. Koide? 

Ms. KOIDE. Thank you. I would. 

I absolutely recognize the need to get banks to play more with 

the nonbanks. It has to happen, because these are volume businesses and they need volume to be able to affect the price. 

I completely recognize the need for coordination among the regulators. I need to read the bill again; it has been about a year- anda-half since I looked at it. But I don’t know that adding another 

regulator in the mix of regulators is ultimately going to get us 

what we need. 

Mrs. MALONEY. Then, how do you force some institutions to work 

with these independents to provide this? 

54 

Ms. KOIDE. I also wanted to say that I think we absolutely need 

uniformity and clarity of the rules across the different types of 

products. I think that emphasis from Congress on the regulators— 

this new bureau, once it does get up and running, is going to be 

working with the other regulators to create joint guidances, for instance, on what good consumer protections look like. 

I need to look further at the bill, but I would pause on that. 

Chairwoman CAPITO. Thank you. 

Mr. Renacci, for 5 minutes? 

Mr. RENACCI. Thank you, Madam Chairwoman. 

And thank you to all of the individuals participating today. 

There is a little bit of confusion for me because we do have a 

problem. We are hearing that there are a number of underbanked 

individuals who need these type of loans. 

And then we had the regulators in earlier who were saying we 

had pilot programs, but when I questioned whether they were 

working, they said they don’t have a conclusion as to whether they 

are working because we don’t have the numbers. So hopefully, I 

will get some numbers that will show whether they are working. 

Mr. Grant testified that banks are having issues with the profitability of these loans, so it tells me that—and then, of course, I 

have had discussions with many banks who have said that it is 

very difficult to manage these loans and make a profit on these 

loans. So we have a need and we have to be able to provide for that 

need. 

So I would question, first, Ms. Guzman. With the States getting 

away from some of these types of short-term lenders and shortterm loans, and not wanting them, do you have any research as to 

where these individuals are going when there is an emergency and 

they need the cash? 

Ms. GUZMAN. The only research I have is, being that our mission 

and our actions are driven through our consumer feedback, is the 

feedback from our consumers. And they tell us they are forced either to more expensive options, such as bouncing a check. In almost all cases, their credit was negatively impacted. 

And basically, ultimately they have lost their housing, they have 

had their utilities turned off, they have lost child care, which is 

critical for some of our single heads of households. It has just become basically a nightmare. It restricts options. 

And, they somehow feel very slighted, considering they are hardworking Americans who pay their taxes, and yet they don’t have 

the choices that they need because government has restricted 

them. 

Mr. RENACCI. I have seen somewhere—I can’t find it here—but 

I even saw that some were going offshore, doing whatever is necessary to get the dollars. 

Ms. GUZMAN. Absolutely. Unregulated offshore lenders always 

find their way to our consumers, unfortunately. 

I would just hate to see something that is not regulated on any 

level make its way to our consumers. We certainly want the options 

to be expanded and the access to be there, but we want to make 

sure our consumers are protected, also. 

And choice seems to be the number one thing that is mentioned. 

They feel a sense of pride in being able to weigh out choices and 

55 

choose the option that works best for their homes and their families. 

Mr. RENACCI. Mr. Gilbert, are these some of the individuals who 

would be the profile of your typical customer? 

Mr. GILBERT. Yes. Our typical customer is a female head of 

household, probably age 35, with children, one person in the household working, and an income in the $45,000 to $65,000 range. In 

our consumer studies, choice is the number one objective or the 

number one goal for these consumers. 

But trust comes in right there. These organizations need to be 

very, very clear about who they are to their customers so trust can 

be earned and maintained. 

Mr. RENACCI. Do you have any competition from small banks or 

community banks? 

Mr. GILBERT. I wish we did have a lot more. We have been working very, very hard with a number of community banks, particularly in the State of California. 

The challenge that they are finding, because they are insured by 

the FDIC, is I often receive a message that there is no space for 

small-dollar lending, really, in an insured deposit system. Safety 

and soundness of the banks is really the overarching concern when 

looking at these types of programs. 

But we continue to push on, because I am quite sure that soon 

enough, we will find the right bank. I also believe that some federally chartered credit unions could be the right partners for us over 

time. 

Mr. RENACCI. Can you give me an idea of what your default ratio 

is? 

Mr. GILBERT. We are seeing a default ratio of approximately 10 

to 12 percent for first-time consumers and 5 to 8 percent for returning customers. 

Mr. RENACCI. Okay. 

Ms. Rademacher, you made the comment—you had some good 

conclusions. The problem I had with your conclusions was they 

would be for somebody who was not in trouble, who was not in an 

emergency situation, does not have the need today for those dollars. 

What would you say for those people? Where should they go? Because your conclusions are, we need to teach people that they need 

less debt; we need to find financial institutions with better interest 

rates. 

All of those things are great when you don’t have an emergency. 

But these people are coming up with emergency situations, which 

we all could have in life. What are your thoughts on that and 

where should they go? 

Ms. RADEMACHER. Sure. No, it is a great point, and I actually 

knew that there would be a number of people talking about some 

of the alternatives that I might have cited myself. So I didn’t spend 

as much time talking about where they can go today. 

In addition to the innovation in the marketplace, as with some 

of the folks who are here on the panel, there are a lot of cities and 

States trying to innovate, as well. They recognize that you cannot 

just create parameters around the conditions of emergency loan 

products without making sure that there are alternatives available 

56 

in this space. That is where the Virginia small-dollar loan pilots 

are coming from. 

There is certainly a lot of evidence, I think, from the work that 

has been done in North Carolina as well, with the profitability for 

a credit union, on the large scale, with the kinds of emergency 

loans that can be offered safely and relatively affordably to people 

in crisis already in existence, but do need to be promoted there. 

I think that the— 

Mr. RENACCI. I am running out of time, but just one really quick 

question: So you believe that as long as they were regulated properly, some of these nonfinancial institution providers of short-term 

loans would be a working solution? 

Ms. RADEMACHER. Yes. I think to the points made here, capping 

the interest rate, capping the amount of churn that can happen, or 

the amount of rollover that needs to happen, understanding the 

needs of both the consumer and the marketplace for a sustainable 

product is paramount. 

Mr. RENACCI. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Baca? 

Mr. BACA. Thank you, Madam Chairwoman. 

Ms. Guzman, there has been limited effort by the Federal Government to tap into the market and allow federally regulated institutions to offer products to underbanked and unbanked populations, and we are still seeing a large number of consumers still 

limited to this option, and I appreciate your personal story that you 

told earlier. 

In your opinion, what has held back the Federal programs from 

reaching out to these people who clearly still need access to credit? 

And then, I want to follow up with another question, if I can, and 

what are the obstacles in place that have limited the private 

nonbank lenders from reaching all of the people who need credit? 

Ms. GUZMAN. First, it is a simple answer. Banks are the only answer. That is what we are literally being told. My consumers are 

being told, if you don’t deal with a main banking institution, you 

have no options. So, they go to alternative financial services that 

are working very well for them. 

I understand from my colleagues in the banking industry, they 

don’t really care about my consumers that use alternative—that is 

not their job. That is not the business they are in. They are in the 

business of— 

Mr. BACA. Why don’t they care? Why do they say that they don’t 

care? 

Ms. GUZMAN. Because they are held accountable to a board of directors for whom the bottom line demands a profitability, and these 

are high-risk people who, for any reason— 

Mr. BACA. But these are people in need of an emergency loan. 

Is that correct? 

Ms. GUZMAN. Yes. Or sometimes it is not just an emergency. 

Someone loses a job or has a cut in hours or a cut in pay for a period of time, maybe 5, 6 months—it is not something anyone intends to do or I think does out of lack of responsibility. Everybody 

enters into their commitments well-intended. 

57 

The problem with regulations, while they are well-intended, is no 

one is asking consumers what they need. The intentions are done. 

I am a local school board member, so I do this also. I make decisions for my constituency based on what I feel is in their best interest. However, often State laws and other laws are made that are 

actually hindering consumers from being able to manage their finances in their household because their options are limited and 

they are forced to do something that creates a larger problem. 

I think sometimes— 

Mr. BACA. That is because, also, the credit card—there is a credit 

card option, but the credit card option then means that it is a higher interest rate, as well. Isn’t that correct? 

Ms. GUZMAN. Absolutely. And I have a video of my consumer testimony I would be willing to share with all the committee and send 

to your offices that shows that the Credit Card Act negatively impacted many consumers by dropping consumers who had goodstanding credit down to a $1,000 minimum. That didn’t give them 

very many options to keep cash flowing in an emergency or during 

a period of time when they have a tough time making ends meet. 

They certainly want, again, more access to choices so they can 

identify their problem and choose the option that works for them 

and their household. That is pretty much what we want them to 

do so that at some point, they can work their way up to traditional 

banking, and own a home, and acquire the American dream. 

Mr. BACA. My next question is for Mr. Gilbert. 

Everyone is saying that competition and innovation is the key to 

coming up with answers to the problems. What are the biggest 

problems for these nonbank lenders to expand and fill these needs 

that 50 percent of the Americans need—and I will say 50 percent 

of the Americans needs—and can the current patchwork of the 

State regulations allow for this? 

Mr. GILBERT. I think the biggest challenge, Congressman—and 

thanks for the question—is finding the right platform to conduct 

business. For innovators, before one rolls out a full, complete program across millions of consumers and potentially multi-States, we 

always try to consider pilot programs, much like the FDIC spoke 

about, and I think it could be very enabling if there were pilot initiatives under any of the agencies, or perhaps the purview of the 

Bureau, to enable true pilots. 

We can learn a lot from the pilots if they are run on reasonable 

terms and over a reasonable period of time. And for me, I describe 

reasonable as at least 2 years—the first year to get it up and running, and the second year to get the data and continue reporting. 

I think, also, the patchwork of State laws is something that we 

have to appreciate and live with in the United States, but also respect the need for uniformity. The cost of compliance can bring 

down even the most successful business. 

As an entrepreneur, many will ask me, ‘‘Why are you in financial 

services?’’ I could be in social networking, or sell widgets online. 

This is a challenge, and that is why we are standing up to the challenge. 

Thank you. 

Mr. BACA. Thank you very much. 

58 

I know that my time is going to expire, so I will yield back the 

balance of my time. 

Chairwoman CAPITO. Thank you. 

Mr. Westmoreland for 5 minutes? 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

Ms. Koide—I am not really good with names—where does your 

company get its operating funds from? 

Ms. KOIDE. We get our funding from a variety of sources. We are 

an organization that began with funding from the Ford Foundation. 

Our president, 10 years ago, when there was so much focus on access to credit and realization that there are these consumers who 

are out there who we don’t really understand what drives their 

choices and the products that they use, she sought out funding 

from the Ford Foundation in order to do a pretty comprehensive 

study to understand those consumers with the objective and appreciation that ultimately scale solutions reside in the market. 

So we began with funding from the Ford Foundation, and we 

have significant funding from other national philanthropic funders. 

We also have resources that are generated through roundtables 

that we hold. We also hold an annual conference each year for 

underbanked innovators. So it is a range of sources. 

Mr. WESTMORELAND. No Federal, though? No grants? 

Ms. KOIDE. No Federal money, no. 

Mr. WESTMORELAND. And, Ida—I am going to call you that, rather than destroy your name, but—I am assuming that you get your 

funding from private sources, also? 

Ms. RADEMACHER. We do. Primarily, the model is we have about 

80 percent of our funding from philanthropic sources. 

We do have some new Federal contracts. We are partnering right 

now with the Department of the Treasury to build out some of the 

basic tools and data for the financial access types of initiatives that 

are happening in communities around the country—somebody mentioned Bank On initiatives. So we are doing a number of things 

with that at the moment. 

We are creating estimates at the local level for unbanked and 

underbanked based on the FDIC’s data. We are looking across the 

financial institutions to look at what it means to be sustainably engaged in this work—what is the kind of— 

Mr. WESTMORELAND. Okay. That is fine. I just wanted to know 

about the— 

Ms. RADEMACHER. That is where I am from, yes. 

Mr. WESTMORELAND. I found your testimony pretty interesting. 

I come from a construction background, and I actually have seen 

people in dire need of $200, $300, $400, $500. You can see it in 

their eyes; I have seen it. 

And you said that one of the things that you think the ultimate 

test was, is does this product help consumers improve their financial situation or does it make the situation worse? Then, you go on 

to talk about the no credit, low credit, whatever. And then you talk 

about the amount of interest that somebody should be capped, as 

far as charging. 

Would staying out of jail be something that would help the financial situation or hurt the financial situation? 

59 

Ms. RADEMACHER. That would obviously help. I am not saying 

that we should—I think the whole point of what I was trying to 

say and what I—we have continued to say is that it is an unfortunate situation we find ourselves in in America right now, that people have to choose between immediate urgency and— 

Mr. WESTMORELAND. No, ma’am. I couldn’t agree with you more. 

But if you were counseling somebody, would you tell them that it 

is going to be better to go to jail than to borrow $300 from somebody? Would you tell them it is going to be better to pay $30 in 

an insufficient check fund to cover a $5 check? 

Are those some of the things that you would weigh when you are 

looking at financial responsibility? 

Ms. RADEMACHER. Yes. I had this conversation, preparing this 

testimony, with my sister, about her experiences with short-term 

lending and where she has been for very similar reasons, the 

choices she has made. Nobody can knock the choices somebody 

makes in an urgent place. They— 

Mr. WESTMORELAND. —to make choices in life, but you have to 

do it, so— 

Ms. RADEMACHER. Yes. She wishes she didn’t have to make 

them, and she hopes in the long run she has opportunities so she 

can get out of that trap. 

Mr. WESTMORELAND. I understand. But a lot of people find themselves in the situation where they can’t, and what I have found is 

that somebody who really needs $400, they are going to either borrow it from somebody who is licensed, they are going to borrow it 

from somebody who may do physical harm to them if they don’t 

pay it back at a very large interest rate, or they are going to break 

into somebody’s house or car or steal something to go pawn to get 

the money. 

So I think there is a place for some of these financial or nonfinancial institutions, whatever you want to call them, that really 

go into some of these areas to locate, to service the needs where 

a lot of people don’t. And so when I read your testimony, I just felt 

that it was very, very interesting that you are weighing what it is 

in the financial balance, but in real life, a lot of those people weigh 

that every day between going to jail, not going to jail, being able 

to go to work, or not being able to go to work. 

Thank you very much. 

Chairwoman CAPITO. Thank you. 

Mr. Meeks, for 5 minutes? 

Mr. MEEKS. Thank you, Madam Chairwoman. 

And let me just say, Mr. Westmoreland, I actually concur. My 

own life experiences tell me that you are absolutely correct. 

There are a number of individuals out there who are not just 

considering their financial situation or their financial health, they 

are thinking about survival. They are thinking about, ‘‘How do I 

make it to the next day? How do I keep my family intact?’’ 

They are not thinking about, ‘‘Oh, I have to have a FICO score 

of 700, and I have to make sure that my financial situation is in 

order.’’ They are not there. 

They are saying, ‘‘How can I live to make it another day, keeping 

my family together?’’ And they have these options that they have 

to choose from. 

60 

Now, personally, my point of view is if they had more options on 

a legal way, then they will be able to make better choices. But if 

we limit the options that they have—because guess what? If you 

happen to have the 750 credit score and a lot of money, you have 

a lot of options. The options are limited for those who do not. 

And for them, when you talk to—my family back then, if you talk 

to them and you ask them, or folks are telling them, ‘‘Get your financial life in order,’’ when they are trying to get their life in order 

for the next day, they say, you have to be out of your mind. 

And if you go to a bank whose interest is not that consumer, that 

is not their interest. That is not who they are going to—they are 

bored with—get them off the board of that is what they were focused on. 

So to me, if there is a group of individuals or businesses that 

says, ‘‘Okay, we want to compete for this unbankable population. 

We think that it is viable. We think that we could make some 

money doing it. But we think that we can compete for this population,’’ the people who I know that are in that situation will say, 

‘‘Thank you. You understand my needs. Give me some options of 

people who want me because they know that I am struggling every 

day to make it.’’ 

I have somebody—I won’t say who—on my staff who has been 

trying to get a $500 loan to fix their car so they can go to work. 

They have gone to bank after bank after bank. The banks won’t 

give them the money. 

Finally, I know someone who gave them the money so they can 

get back and forth to work. But if they had institutions that were 

competing for them—but guess what? We talk about the interest 

rates. I think even in that population, that competition would draw 

the interest rates down if you had as many people as you could 

that would be going after them, that is how you bring the rates 

down. 

They would be competing for them just as people in the other 

end. What do they do to get people with money to bank in their 

banks? They lower the rates. They give you free checking. They 

find ways to try to entice you in to them because that is the customer that they want. 

It is the same thing on the bottom end. There is no difference 

for those who have been on the bottom, it is just that nobody has 

been competing for them. And I think it would be wrong for us that 

if we have institutions that now want to compete for that business 

to say, ‘‘Nope. You can’t do it. We are going to regulate you out of 

the business; we are going to end it because you are bad. You can’t 

do it.’’ 

And in essence, you are saying to those people, ‘‘You can’t exist.’’ 

I do financial literacy in my district all the time, and we do need 

to teach and educate folks. But in order for them to be able to advance into the sphere of financial literacy, they first have to survive. So if they allow them to survive and then teach them financial literacy, then hopefully one day they will have some money to 

lend to others and compete. They can go from one end of competition to the other end of competition, because that is what this is 

really all about if you live the life. 

61 

I have been there. I have been there, believe me. And so, I don’t 

just speak from theory; I speak from very real life. 

I had these questions and I know I took up my time, so I will 

stop there. I had a bunch of questions, but you just hear this stuff, 

and because it is so close to me, I just had to make these comments. 

But I want to thank all of you for being here, and I look forward 

to working with you. 

Thank you, Madam Chairwoman, for this hearing. 

Chairwoman CAPITO. Thank you. 

Mr. Luetkemeyer, for 5 minutes? 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

And I thank all of the panel for being here today, and I certainly 

thank Mr. Meeks for his passionate words there. I think that we 

are all here to try and find a way to help those who need some help 

with access to credit. 

That is what this is all about today, and I think we need to find 

a way to structure this environment so that people can have access 

to it, and structure it in a way that they can afford whatever alternatives they pick, yet allow the business climate to be able to fund 

itself, make enough money so that it can continue that service. We 

are all looking for that balance; we are all looking to help these 

folks. And it is the give and take, and it is the struggle we are with 

here. 

So I know Mr. Meeks and Mr. Westmoreland made some great 

points. 

Quick question for Ms. Manturuk: In your testimony, your research says that you show that there was no real impact on the 

abolition of small-dollar lending in North Carolina, yet the Federal 

Reserve of New York published a study, and also, according to my 

information, the Federal Reserve Bank of Kansas City published 

something in the Economic Review that said whenever the payday 

loans were banned in Georgia and North Carolina, households 

bounced more checks, complained more to the FTC about lenders 

and debt collectors, and filed Chapter 7 more often than households 

in other States where payday lending was permitted. 

Can you tell me what the difference is between the studies? 

Ms. MANTURUK. I read that study probably a couple of years ago, 

so I am a little bit rusty on it. My recollection was that study didn’t 

account for macro-level economic changes that might have changed 

in the before and after climate. 

Our research was aimed at actually talking to people who were 

former payday borrowers themselves, and getting their impacts 

and their evaluation of the impact it had on their lives, and that 

is where we derived the finding. Interestingly, when we targeted 

people who lived in communities where there had been a proliferation of payday lenders, most of them did not even realize that the 

option was gone, which, I think, speaks to the fact that this really 

wasn’t something that was important in their financial lives. 

When we focused exclusively on people who were former borrowers themselves, though, they overwhelmingly said that they felt 

that they were grateful that the option was gone. One of the more 

interesting things, as one customer told us, is that not having what 

62 

she considered to be a negative option had actually prompted her 

to change the way she managed her money on a regular basis. 

Mr. LUETKEMEYER. That is interesting. They were glad it was 

gone. That is curious. 

One of the things—I used to be the chairman of the Financial 

Services Committee in Missouri, and we instituted a lot of new 

rules and regulations with regard to payday loans, title loans, 

small-dollar loans. And one of the things that we did was put it in 

what I call the ‘‘Fed box.’’ I am a banker, and on your housing 

forms you have a disclosure box, or we call it the ‘‘Fed box’’ a lot 

of the time. It discloses all the interest rates, and the origination 

fees, and any other fees that are in this that are there. 

I know that is what we did with regards to the forms there in 

Missouri, and I was just kind of curious, in your experience do you 

see any consumers that shop the rates? Do they shop for rates at 

all? 

Ms. Guzman? 

Ms. GUZMAN. Absolutely. And their method of shopping is by 

walking into a bank or a credit union and being told, ‘‘No. We don’t 

have a product that fits your needs,’’ or actually being told they can 

apply for an option and then not qualifying for it for a multitude 

of reasons. 

Unfortunately, this becomes very humiliating and very degrading. And then, when they look at their other options in other locations, they find that it will work for them. 

I don’t think there is much—you don’t need too much common 

sense, and my consumers certainly have great common sense—they 

are short on funds, but not on common sense—that you need your 

money today but they are going to hold your check for 3 days at 

the bank that has your account. Naturally, you are going to go to 

a check casher. The same thing goes for access to funds. 

Mr. LUETKEMEYER. That is kind of interesting, because we 

haven’t heard a lot of testimony today that has been a negative 

about the small-dollar loan folks, but I know when I was the chairman, because I oversaw that area, I would constantly check with 

the regulators and see once if there were a lot of complaints filed. 

And it was interesting to see that there were fewer complaints filed 

against small-dollar loan lenders than the banks themselves— 

Ms. GUZMAN. Yes. 

Mr. LUETKEMEYER. —which tells you that they are delivering a 

good service at prices that are competitive, that it is a service that 

people want. 

And I noticed in your testimony, Ms. Guzman, you were talking 

about how they want more choices that help them get credit back 

for themselves. And we had a lady who testified in this committee 

at a hearing recently—several months ago—that she used it as a 

way to get back her regular credit so that she could get back and 

actually be able to go buy a house and start a business. 

And so while it may not be for everybody, it certainly fills a gap 

for those who need some quick access to cash in small amounts. 

So with that, thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

63 

I think that concludes our hearing, and I want to thank all the 

panelists from the second panel. You were very great witnesses, 

with very good information. 

The Chair notes that some Members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

With that said, the hearing is adjourned. 

[Whereupon, at 12:52 p.m., the hearing was adjourned.] 

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A P P E N D I X 

September 22, 2011 

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