This past Tuesday, Acting Comptroller of the Currency Michael Hsu appeared as a witness at the Senate Banking Committee’s hearing, “Oversight of Regulators: Does our Financial System Work for Everyone?

In his written and oral testimony, Mr. Hsu stressed as an overall theme the need for the OCC to prohibit “predatory and discriminatory practices while promoting financial inclusion.”  Mr. Hsu’s testimony included the following:

Overdrafts.  Citing data indicating that three OCC-supervised banks had relied on overdraft fees for 100% of their profits, Senator Van Hollen questioned Mr. Hsu as to whether he considered such reliance a safety and soundness concern.  Mr. Hsu indicated that such reliance “raised a lot of flags” and stated that “excessive fees on overdrafts, predatory lending, high-cost debt traps” should be prohibited and “don’t have a place in the federal banking system.”  He testified that the OCC is currently looking closely at overdrafts and was prepared to use its full supervisory toolkit to address problematic overdraft practices.  He also testified that there is an ongoing interagency effort to address the “$35 coffee” concern, which is a reference to a scenario in which a consumer incurs a series of large overdraft fees as a result of using a debit card to make a series of small dollar purchases.

Mr. Hsu also noted the efforts of some larger banks to reform their overdraft practices and indicated that the OCC is encouraging other large banks to rethink their overdraft practices to make them fairer and more flexible.

Community Reinvestment Act.  Mr. Hsu referenced his previously-announced plans to rescind the OCC’s CRA rule and for the OCC to work with the FDIC and Federal Reserve Board on a joint rulemaking to “strengthen and modernize” the CRA.  While not providing any timetable for rulemaking, Mr. Hsu testified that there is urgency to issuing a new proposal and that agency teams are working quickly to meet aggressive internal timelines.

True lender.  Mr. Hsu testified that the OCC is revisiting bank partnerships in response to Congress’s CRA override of the OCC’s “true lender” rule.   He indicated that OCC staff has been instructed to gather and analyze data on bank-fintech partnerships to examine how the OCC can distinguish “harmful rent-a-charter arrangements” from “healthy partnerships that expand access to credit.”  He stated that this analysis will inform the OCC in exploring options for protecting consumers while expanding financial inclusion.

Alternative data.  In 2020, the OCC launched the “Roundtable for Economic Access and Change,” known as “Project REACh.”  Mr. Hsu discussed the problem of “credit invisibles” and indicated that Project REACh participants, as a means for addressing barriers to financial inclusion, are evaluating models that use alternative data sources to determine creditworthiness.