A bipartisan bill that would permit regulators to grant federal charters to nonbank consumer lenders is being met with fierce resistance — particularly from regulators themselves.
Supporters claim the bill, introduced last Wednesday by Reps. Blaine Luetkemeyer, R-Mo., and Joe Baca D-Calif., would help lenders bypass the patchwork of state-level regulations and usury laws, thereby increasing access to credit. The Consumer Credit Access, Innovation, and Modernization Act, H.R. 6139, would apply to firms that offer installment and other small-dollar loans with repayment terms longer than 30 days, they say. The sponsors said the bill would expressly not apply to payday loans.
But the Office of the Comptroller of the Currency, the agency that would be tasked with granting the federal charters, outlined its strong opposition to the bill at a hearing Tuesday before the House Financial Services' subcommittee on financial institutions and consumer credit.
"What we believe we've seen in our experience is a construct of the bill that would essentially require us to charter companies as national consumer credit corporations and have as a part of those new charters companies against which we already have cease-and-desist orders outstanding for offering the very types of products that trap people into a cycle of debt," Grovetta Gardineer, deputy comptroller for compliance policy at the OCC, said on Tuesday.
Gardineer argued that the OCC would have little recourse to deny a charter application unless it expressly found a product or service was harmful to consumers, potentially opening the door for lenders to reintroduce products the OCC has already prohibited at national banks, including payday, tax-refund anticipation and auto title loans.
"By requiring the OCC to charter national consumer credit companies that present business plans that meet certain chartering criteria, and to approve products or services that such companies would offer unless the OCC makes an express determination that such product or service will significantly harm the interests of underserved consumers or small businesses, H.R. 6139 would undermine steps the OCC has taken over the past 10 years to address significant consumer protection issues, [Bank Secrecy Act and anti-money laundering concerns], and safety and soundness risks that many of these products pose," she said in written testimony.
The proposed legislation could also interfere with the Consumer Financial Protection Bureau's authority to police nonbank institutions and certain alternative financial products, Gardineer added.
But the bill's sponsors took umbrage with the OCC's reading of the legislation, emphasizing the need to make credit more easily available to low-income consumers, including those who don't have bank accounts.
"You keep looking at the glass as if it's half empty. I think it ought to be half full. I look at this as an opportunity to help people if it's structured correctly," Luetkemeyer told Gardineer at the hearing.
"You keep telling me, 'the OCC can't do this, can't do that. We're looking for this, we're looking for that.' We're giving the authority in this bill to work with the individuals who want to do this type of lending and create an environment that will work," he added.
Despite the bipartisan sponsorship, Jaret Seiberg, senior policy analyst for Guggenheim's Washington Research Group, said the bill faces long odds on Capitol Hill.
"This will run into opposition from the left and the right," Seiberg wrote in a research notes to clients. "The left will not want to strip the CFPB of any authority while the right will object on state-rights grounds as this would federalize a power traditionally exercised by the states. We give the legislation less than a 5% chance of enactment."
Still, some lawmakers used the hearing to press regulators to come up with tangible solutions for meeting the credit needs of low-income consumers.
"Well you have commented in your statement that you want to serve underserved communities and unbanked populations and you don't want any abuses and you want to protect them and you want to help them build their credit scores. I think that's all great, but how?" Rep. Carolyn Maloney, D-N.Y., the subcommittee's ranking member, asked Gardineer. "Where does the mother whose car broke down and who desperately needs $2,000, where does she go to get a loan?"