Earlier this week, by a party-line 34-26 vote, the House Financial Services Committee passed H.R. 4861, a bill seemingly intended to ease restrictions on short-term, small-dollar loans made by depository institutions. The bill is part of the efforts of House Republicans to provide greater regulatory relief to banks than would be provided by S. 2155, the banking bill passed by the Senate last week. We expect that Jeb Hensarling, who chairs the House Committee, will attempt to make the bill part of a final banking bill.
H.R. 4861 would nullify the FDIC’s November 2013 guidance on deposit advance products, which effectively precludes FDIC-supervised depository institutions from offering deposit advance products. (The FDIC supervises state-chartered banks and savings institutions that are not Federal Reserve members.) We had been sharply critical of that guidance, as well as the OCC’s substantially identical guidance as to national banks. However, in October 2017, just hours after the CFPB released its final rule on payday, vehicle title, and certain high-cost installment loans (CFPB Rule), the OCC rescinded its guidance on deposit advance products. Because the FDIC has not yet followed suit, H.R. 4861 would remove a regulatory impediment to state-chartered banks and savings institutions offering one form of small-dollar lending to their customers.
H.R. 4861 would require the federal banking agencies to promulgate regulations within two years “to establish standards for short-term, small-dollar loans or lines of credit made available by insured depository institutions.” The standards must “encourage products that are consistent with safe and sound banking, provide fair access to financial services, and treat customers fairly.” The regulations would preempt any state laws “that set standards for [such loans or lines of credit]” and would override the CFPB Rule for insured depository institutions that become subject to H.B. 4861 regulations. (Insured and uninsured credit unions would gain relief from the CFPB Rule even before regulations are adopted.)
Presumably, the “standards” under H.B. 4861 regulations could include interest rate standards. Thus, federal banking agencies supportive of short-term, small-dollar loans could authorize interest rates higher than the insured depository institutions could otherwise charge under applicable federal law. Unfortunately, as it is currently drafted, H.R. 4861 could be interpreted to allow the banking agencies to establish rate limits that are more restrictive than the limits that currently apply under federal law. Accordingly, we would hope that the final bill will clarify that it does allow the federal banking agencies to impair existing rate authority under applicable federal law, including Section 85 of the National Bank Act, Section 27 of the Federal Deposit Insurance Act, and Section 4(g) of the Home Owners’ Loan Act.