TESTIMONY OF

RICHARD SEARCH

PRESIDENT & CEO,

CONSUMER BANKERS ASSOCIATION

PRIOR TO THE UNITED STATES OF AMERICA SENATE SPECIAL COMMITTEE ON AGING

PAYDAY ADVANCES: SHORT-TERM SOLUTION OR LONG-TERM PROBLEM?

Chairman Nelson, Ranking Member Collins and users of the Committee, many thanks when it comes to chance to talk about the short-term liquidity requirements of US customers and bank deposit advance items. I am Richard search and I also have always been President and CEO associated with customer

Bankers Association (“CBA”). 1

Presently, a calculated 76% of all Americans reside paycheck to paycheck. 2 The economy has remained stagnant making customers with less pillow for emergencies, strained credit scores, and less credit choices, making usage of fairly priced short-term liquidity services and products all of that more important. Different credit that is entry-level occur to fulfill an array of requirements, including old-fashioned charge cards, signature loans, along with other types of credit. Regrettably, numerous customers usually do not be eligible for them. In reaction, some banking institutions have actually selected to provide a deposit advance item to generally meet their clients’ need and interest in short-term, small-dollar credit. 3

Deposit advance services and products, offered today by just six banks, provide a critical short-term, smalldollar credit interest in customers that do not be eligible for conventional credit services and products. The products aren’t loans, these are typically credit lines (“LOC”) paid back immediately from the recurring direct deposit. While specific items differ, the most advanced level is limited by the reduced of the limit (typically $500) or a portion associated with the average recurring repayment (e.g. 50 per cent). Deposit advances providers often charge a definite, easily recognized cost according to a portion associated with loan.

Executive Overview

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

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

• Deposit advance items don’t have a disparate impact on seniors. Total consumer use corresponds approximately because of the population of seniors in the usa.

• Deposit advance services and products have now been provided by depository institutions for several years and tend to be intensely regulated for customer 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 advised going forward. Deposit advance items try not to provide safety and soundness dangers towards the organizations that provide them. The products have integrated settings to restrict usage, aren’t earnestly marketed, and supply clear and disclosures that are conspicuous.

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

“consumers need to know the expenses up-front and don’t desire to be blindsided by concealed charges, rate of interest modifications, or re payment shocks. Informed decision-making allows customers to push the financial market in order that providers offer items that meet customer requirements and choices.” 4 As outlined in our testimony today, CBA thinks the banking institutions providing deposit advance services and products have actually followed to those terms when you look at the strictest feeling by giving fairly priced services and products with very clear terms, fulfilling the demand of U.S. customers.

Conversation

Deposit advance items are greatly managed and very very very carefully built to make sure consumer that is strong at reasonable rates. Especially, deposit advance items have actually properly served consumer interest in a long time under intense scrutiny that is regulatory one item having held it’s place in presence for pretty much 2 full decades. As a result, these items have already been scrutinized time and time again for customer security and security and soundness issues by many state and federal banking regulators. Banking institutions have responded by dealing with regulators to make sure items that would be best suited for public providing.

Bank-offered deposit advance items serve a significant function: they help in keeping customers from being pressed out from the heavily regulated bank system and into higher priced and often less and inconsistently regulated options such as for instance conventional payday advances, pawn brokers, name loans as well as other types of short-term, small-dollar financing. Also, without reasonable options, customers will probably pay greater costs for short-term liquidity or may face increased delinquency, belated re re payment, nonsufficient investment, and returned check charges.

Among the benefits of bank-offered deposit advance items is they truly are typically cheaper than other alternatives. As an example, for the $100 loan paid back over a thirty day period, the typical price of a quick payday loan is $15.26, a number of program are much greater. 5 Even during the end that is highest, the expense of a bank deposit advance item for similar quantity is just $10, with some as little as $7.50.

More providers available on the market and efficient and regulation that is consistent make sure greater competition and innovation, which finally increases defenses and reduced expenses. Extremely