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Code · BILL · 113th Congress · H.R. 1566 (Introduced in House) — To create a Federal charter for Internet consumer credit corporations, and for other purposes. · Sec. 2

Sec. 2. Findings; purpose; and intent

1,356 words·~6 min read·/bill/113/hr/1566/ih/section-2·

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Congress finds the following: Studies by the Federal Deposit Insurance Corporation (FDIC), National Bureau of Economic Research, FINRA Investor Education Foundation, and other credible parties have shown that roughly half of all American families, including not only lower and moderate income families but also a large segment of middle and higher income families who have poor credit scores and limited disposable incomes, are literally living paycheck-to-paycheck, lacking adequate savings and other resources to cover unplanned expenses that frequently arise in every household.
These consumers (in this Act referred to as underserved consumers ) include those who are unbanked , having neither a checking or savings account at a depository institution, and those who are underbanked , having such an account and frequently having higher incomes but credit impairments, while nonetheless needing to rely on nondepository financial institutions for short-term, small loans and other credit products and financial services they desperately need, but generally cannot obtain from traditional banking institutions.
Credit alternatives for underserved consumers generally are limited and often not well suited to their particular needs and in some instances lack any statutory consumer protections. Programs by the FDIC and other parties to expand access to small loans and other financial products or services for underserved consumers through banking institutions have had very limited success because banks, which typically have relatively high operating costs, generally have been unable to make affordable small personal loans on a widespread, commercially viable basis to these higher risk consumers, most of whom may not even qualify for a loan under the high-credit standards regulators necessarily require insured depositories to maintain.
To the extent that depository institutions offer underserved consumers affordable small loans and other financial products or services on a commercially viable basis, they should be encouraged to do so, but it must be recognized that overcoming the practical business obstacles for depositories to offer such products or services appears to be quite difficult at best for most depositories, and given the massive scope of the short-term credit needs of such consumers, depositories most likely will be unable to provide affordable small loans and other financial products or services for a significant number of them.
Efforts of governmental, nonprofit, and private sector institutions to help underserved consumers manage their personal finances more effectively through financial education and counseling programs also are important and must continue, but given the tremendous number of consumers who face significant ongoing financial challenges, most such underserved consumers are likely to be unable to overcome their financial difficulties through such efforts. Nondepository creditors historically have been primarily State-regulated, are not federally insured, generally pose little or no systemic or taxpayer risk, typically have lower operating costs and can employ less restrictive credit standards than depositories, and are a major source of small loans and financial products or services for underserved consumers, providing such consumers annually with billions of dollars in credit.
A number of nondepository creditors have developed advanced proprietary loan underwriting and servicing procedures and cutting-edge technologies allowing them to offer credit to more underserved consumers, but such creditors lack the authority available to national banks to operate on a multistate or nationwide basis using a single lending charter and subject to strong, uniform Federal regulation that would enable them to maximize their capacities to operate more innovatively and efficiently.
Nondepository creditors are instead subject to widely differing State licensing laws that impose substantial cost and compliance burdens, and, more significantly, laws that severely limit the types of financial products or services that may be offered, prevent loans from being provided on a commercially viable basis, stifle innovation, reduce competition, and leave underserved consumers with a limited choice of products or services that in many cases are not well suited to their personal needs and cost significantly more because of these conflicting and outdated restrictive State laws.
It is in the national interest and will greatly benefit the millions of underserved consumers who have pressing needs for additional credit alternatives for Congress to adopt legislation to authorize creditors the option of receiving a Federal charter under which they can provide such consumers loans and other financial products and services through the Internet and electronic devices and not traditional brick-and-mortar storefront locations, allowing them to operate more innovatively and efficiently on a nationwide basis.
An Internet consumer credit corporation chartered under this Act will be adequately regulated under Federal laws and regulations prescribed by the Comptroller of the Currency and the Director of the Consumer Financial Protection Bureau, and such laws and regulations shall be enforced in accordance with this Act without such corporation being subjected to duplicative and conflicting State laws that in many cases severely and unnecessarily restrict product innovation and choice and raise the cost of the limited credit choices now available to underserved consumers.
Allowing such federally regulated lending by Internet creditors as authorized by this Act through the Internet and by electronic devices, but not through traditional storefront, brick-and-mortar locations, on a nationwide basis, is consistent with the fact that consumers’ borrowing habits are shifting rapidly to seeking more financial product and service choices with the convenience, ease of credit access, and more alternatives provided by computers, mobile phones, and other electronic devices, and millions of underserved consumers will be able to secure credit from Internet consumer credit corporations that are subject to applicable State and Federal laws.
Small businesses, which are vital to job creation and the health of the Nation’s economy, also have a continuing need for additional credit alternatives, and allowing Internet consumer credit corporations to offer certain financial products and services to small businesses through the Internet and by electronic devices will be in the national interest. The purpose and intent of this Act is to— provide underserved consumers greater access to innovative, affordable, commercially viable, and better suited financial products and services; create a Federal charter for creditors that offer financial products or services through the Internet and electronic devices and not traditional brick-and-mortar storefront locations and focus their business primarily on meeting the credit needs of underserved consumers and small businesses, enabling such Internet creditors to provide more innovative, affordable, and appropriate credit options, subject to uniform Federal lending standards rather than operating under the widely varying, often conflicting, overly restrictive, and unnecessarily costly system of State lending laws that currently prevent nondepository creditors from offering underserved consumers and small businesses the credit options they need; clarify that Congress understands that even with the more innovative and efficient lending authorized by this Act and reasonable pricing by Internet consumer credit corporations, the cost of commercially viable, short-term, small-dollar credit for higher risk underserved consumers typically will be considerably higher than the cost for other consumers who have no credit impairments and that when the cost of such credit is expressed in terms of an annual percentage rate, in most cases such rate will be much higher than such rate for larger, longer term loans, especially those made to consumers with unimpaired credit records, and therefore it should not be presumed or necessarily concluded that such credit extensions to underserved consumers are unfair or abusive, provided full disclosure of the cost of such credit is made as required by this Act and such corporation has a reasonable basis for determining that an underserved consumer can repay, therefore indicating that the credit is affordable; require that the Comptroller exercise his or her authorities to administer, enforce, and implement the provisions of this Act and regulations prescribed pursuant to this Act to provide for ongoing prudential regulatory oversight of Internet consumer credit corporations and to promptly adopt reasonable and flexible policies and procedures to ensure the approval of Federal charters for qualified applicants, while also promoting the offering of innovative, affordable, and commercially viable financial products or services; and require that the Director exercise his or her authorities to administer, enforce, and implement the provisions of Federal consumer financial laws and applicable provisions of this Act and regulations prescribed pursuant to this Act to ensure that underserved consumers receive effective consumer financial protections, while also promoting the offering of innovative, affordable, and commercially viable financial products or services.
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