CONSUMER BANKERS ASSOCIATION

PRIOR TO THE UNITED STATES SENATE SPECIAL COMMITTEE ON AGING

“PAYDAY LOANS: SHORT-TERM SOLUTION OR LONG-TERM PROBLEM?”

Chairman Nelson, Ranking Member Collins and people in the Committee, many thanks for the chance to talk about the short-term liquidity requirements of US customers and bank deposit advance items. I am Richard search and I also am President and CEO regarding the Consumer

Bankers Association (“CBA”). 1

Presently, an believed 76% of all of the Americans reside paycheck to paycheck. 2 The economy has remained stagnant making consumers with less pillow for emergencies, strained credit scores, and fewer credit choices, making usage of fairly priced short-term liquidity items all that more important. Different credit that is entry-level occur to meet up a number of requirements, including conventional bank cards, signature loans, along with other kinds of credit. Unfortuitously, numerous customers try not to be eligible for them. In reaction, some banking institutions have actually plumped for to supply a deposit advance item to meet up with their clients’ need and interest in short-term, small-dollar credit. 3

Deposit advance items, offered today by only six banks, provide a critical short-term, smalldollar credit interest in customers that do maybe maybe not be eligible for old-fashioned credit products. The products aren’t loans, these are typically personal lines of credit (“LOC”) repaid immediately from a recurring direct deposit. While specific items differ , the most higher level is limited by the smaller of a limit (typically $500) or a portion of this average recurring repayment (e.g. 50 per cent). Deposit advances providers often charge a definite, effortlessly comprehended charge considering a share associated with loan.

Executive Overview

• Deposit advance items are small-dollar personal lines of credit available simply to bank clients with established checking account relationships in good standing. They’re not loans that are payday. These items integrate features such as for example maximum loan size and cool down durations to safeguard customers from reliance in the item.

• There clearly was high consumer demand for viable short-term, tiny buck credit. Deposit advance items are built to properly, quickly and conveniently satisfy this need. Customers realize and like bank deposit advance items. These items have obtained good comments from customers and carry few complaints.

• Deposit advance services and products would not have an impact that is disparate seniors. Total consumer use corresponds approximately utilizing the populace of seniors in america.

• Deposit advance items happen made available from depository organizations for quite some time and so are intensely controlled for consumer security and security and soundness issues. The potential risks to customers and supervised institutions recently cited by federal prudential regulators are overstated and coordination that is regulatory highly urged going ahead. Deposit advance items try not to provide soundness and safety dangers towards the institutions offering them. The products have actually integrated settings to restrict usage, are not earnestly marketed, and provide clear and conspicuous disclosures.

In testimony before a residence Subcommittee, Senator Elizabeth Warren, then the Unique Advisor to your Secretary associated with Treasury when it comes to customer Financial Protection Bureau (“CFPB”), said,

“consumers wish to know the expense up-front and don’t desire to be blindsided by concealed fees, rate of interest modifications, or payment shocks. Informed decision-making allows customers to operate a vehicle the financial market in order that providers offer items that meet customer requirements and choices.” 4 As outlined within our testimony today, CBA thinks the banking institutions providing deposit advance services and products have actually followed to those terms within the strictest feeling by giving reasonably priced services and products with extremely clear terms, fulfilling the need of U.S. consumers.