WASHINGTON — Just as promised, Republican lawmakers went to work Wednesday considering regulatory reform ideas that would go further than the Senate's tweaks of the Dodd-Frank Act.
A case in point was a bill introduced by Rep. Trey Hollingsworth, R-Ind., to strike down regulatory guidance discouraging banks from offering small-dollar loans.
That legislation, which passed the House Financial Services Committee by 34 to 26, would roll back 2013 guidance issued by the Federal Deposit Insurance Corp. that effectively banned banks from offering deposit advance products. Supporters said regulatory oversight has closed a once-popular avenue for consumers to get short-term credit.
“Do we not want these people to be banked? Do we not want them using bank products? Where are they going to go and in what shadow are they going to find this funding,” said House Financial Services Committee Chairman Jeb Hensarling.
The legislation appeared to be another provision that Republicans would like to advance as part of a regulatory relief package — sponsored by Banking Committee Chairman Mike Crapo, R-Idaho — that the Senate approved last week with bipartisan support. Hensarling previously outlined a list of roughly 30 separate provisions that have bipartisan support that could be tacked onto the package.
But it is still unclear how much the House GOP can expand the bill passed by the Senate, where moderate Democrats have threatened to abandon the bipartisan deal if the regulatory relief package is expanded.
Democratic opposition to the deposit advance bill in the House committee's debate signaled that weakening restrictions on deposit advance may be a bridge too far.
Deposit advance is “just a fancy name for payday lenders,” said Rep. Carolyn Maloney, D-N.Y. She cited a Consumer Financial Protection Bureau study that found that deposit advance loans could be just as harmful to a consumer as a payday loan.
The Hollingsworth bill could ultimately be meant as a message to send to Jelena McWilliams, the nominee to chair the FDIC, that members of Congress want banks to offer small-dollar loans.
Both the FDIC and the Office of the Comptroller of the Currency had issued the 2013 guidance to their banks. But last year, former acting Comptroller of the Currency Keith Noreika rescinded his agency's guidance, leaving the FDIC as the only regulator enforcing it.
While only six banks offered the products before the 2013 guidance, current Comptroller Joseph Otting has endorsed banks offering more small-dollar loans. In a recent speech, Otting said he would like to give banks more leeway in small-dollar consumer lending. “We’ve seen the negative consequences of the payday lenders and check-cashing companies ... that have filled that void,” he said.
The legislation itself received opposition from Democrats, but debate over the bill shed light on points of agreement.
“I speak in opposition to this bill, but I don’t speak in opposition to the problem the bill is trying to solve,” said Rep. John Delaney, D-Md.
Delaney said he opposed the bill because of a provision that would exempt banks and credit unions offering small-dollar loans from the CFPB’s payday loan rule that was released on the same day that the OCC pulled its deposit advance guidance.
However, Delaney said, “There is a real problem among many borrowers in our country where they have been deprived access to the banking system because we have created a regulatory environment that makes it very hard for banks to provide credit to these borrowers and as a result these borrowers seek financing outside the banking system.”
Richard Hunt, president and chief executive of the Consumer Bankers Association, echoed that sentiment in a statement saying, “There is a great need for short-term, affordable credit and banks have historically been able to fill that need for consumers.”
But consumer groups said the legislation would allow banks to make unaffordable loans with triple-digit APRs.
“Payday lending by any lender — including banks — is an abusive form of loan sharking, rooted in trapping borrowers in unaffordable, high-interest rate loans,” Scott Astrada, federal advocacy director at the Center for Responsible Lending, said in a statement.
Delaney said a potential fix would be the creation of specialty licenses or a charter that would be developed in coordination with the CFPB that would allow banks to offer deposit advance products with a limit on the rate of return to ensure the loans were more affordable.
The Pew Charitable Trusts has also studied the issue and proposed a bank installment loan product that limits interest rates to 5% of a borrower’s monthly income.
Other bills that the committee approved on Wednesday are similar to provisions already included in the Senate package, and members on both sides of the aisle expressed their desire to advance a regulatory relief deal.
“I appreciate the bipartisan effort,” Hensarling said of one such bill, introduced by Delaney, that would exempt veteran medical bills that go unpaid by Veterans Affairs from showing up on credit reports.
Another bill that enjoyed bipartisan support on the panel, which has a similar provision in the Senate package, would allow banks with less than $3 billion in assets to be eligible for an 18-month examination cycle, rather than 12 months. The current threshold is $1 billion.
“It will mean more community banks making more loans to the people we care about,” said Rep. Charlie Crist, D-Fla., who co-sponsored the bill with Rep. Claudia Tenney, R-N.Y.
But they also debated provisions besides the small-dollar lending bill that would go beyond the Senate package. For example, one bill, by Rep. Blaine Luetkemeyer, R-Mo., would exempt initial margin on centrally cleared derivatives from being included in the supplementary leverage ratio. That bill passed 45 to 10.
Meanwhile, the committee also approved a bill by Rep. French Hill, R-Ark., that resembled a Senate provision dealing with the Volcker Rule but sought to expand it.
The bill, which passed the committee 50 to 10, would exempt community banks with less than $10 billion in assets from the Volcker Rule — similar to the Senate package — but it would also make the Federal Reserve Board the exclusive rule writing agency for the rule.