A friend brought to my attention a two-page comment letter from Senators Elizabeth Warren and Bill Nelson, commenting on the OCC’s proposed deposit advance guidance, the subject of a prior blog. For a letter co-authored by the single person most responsible for the creation of the CFPB, this is a remarkable.
The letter urges the OCC to discourage banks from using government benefits as proof of income in their underwriting of deposit advance loans. Are Senators Warren and Nelson really unaware that the Equal Credit Opportunity Act flatly bans discrimination against applicants and borrowers based on the fact that all or part of their income derives from public assistance? Do they believe the OCC has the power to override this statutory mandate?
Additional problems with the letter include the following:
The letter expresses consternation that (according to the Center for Responsible Lending) “most deposit advance customers take out more than eleven loans a year.” One loan a month does not strike me as excessive, especially if the loans are used wisely (for example, to avoid late fees or overdraft fees). Like the OCC and FDIC, Senator Warren and Senator Nelson fail to give a second of consideration to what these customers would do in the absence of deposit advances.
The letter makes the ritual claim that “we strongly believe in consumer choice” but simultaneously supports the OCC guidance. As members of a Committee that has been investigating these products, Senators Warren and Nelson should surely know that the guidance will eliminate deposit advances from the market, even without the regulatory enhancements the Senators are proposing.
The letter characterizes the proposed deposit advance guidance as “a productive start in restoring safety and soundness in the banking system. As I have previously observed, the claim is preposterous that deposit advance loans are a threat to the banking system’s safety and soundness.
Far from expressing any concern about the OCC’s and FDIC’s usurpation of the CFPB’s authority to adopt consumer credit regulations under Dodd-Frank and federal consumer credit laws, including the Truth in Lending Act, the letter supports an OCC and FDIC initiative to adopt UDAAP rules and additionally recommends that the OCC adopt, in effect, a TILA rule that would require banks to make a closed-end APR disclosure for an open-end loan.
The tack taken by Senators Warren and Nelson is disappointing. Hopefully, the CFPB will adopt a more considered, evidence-based approach to issues of this type.