Pew Warns Senate Committee Against Re-emergence of Risky Bank Partnerships

In July, the federal Consumer Financial Protection Bureau (CFPB) rescinded its well-balanced 2017 safeguards for payday and similar loans with terms of up to 45 days. That change will be a setback for the millions of borrowers who won’t have these protections, but banks can help mitigate the harm.

As the scale of the economic fallout from the coronavirus pandemic became clear, five federal financial regulatory agencies in late March took the unusual step of issuing a joint statement encouraging banks and credit unions to offer emergency small loans to struggling consumers.

On Sept. 3, The Pew Charitable Trusts submitted a letter in response to a request from the Office of the Comptroller of the Currency (OCC) for comment regarding its efforts to determine the circumstances under which a national bank or federal savings association should be considered the “true lender” in the context of a lending partnership between a bank and a third party.

Several recent developments have raised the possibility of banks and credit unions offering small installment loans and lines of credit—which would provide a far better option for Americans, who currently spend more than $30 billion annually to borrow small amounts of money from payday, auto title, pawn, rent-to-own, and other small-dollar lenders outside the banking system. Consumers use these high-cost loans to pay bills; cope with income volatility; and avoid outcomes such as eviction or foreclosure, having utilities disconnected, seeing their cars repossessed, or going without necessities. Many of these loans end up harming consumers because of their unaffordable payments and extremely high prices; in the payday and auto title loan markets, for example, most borrowers pay more in fees than they originally received in credit.