Former banker, now regulator, wants to allow banks to grant payday loans: NPR

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Comptroller of the Currency Joseph Otting, a former bank executive, testifies before Congress this week on overhauling certain banking rules.

Alex Brandon / AP


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Alex Brandon / AP


Comptroller of the Currency Joseph Otting, a former bank executive, testifies before Congress this week on overhauling certain banking rules.

Alex Brandon / AP

A powerful banking regulator appointed by President Trump could face tough questions during a Senate hearing Thursday on his efforts to allow big banks to make small, short-term, high-interest loans to consumers.

Joseph Otting is a former banking executive who is now in charge of an agency that oversees the country’s largest banks, including some that Otting used to help manage. And he is expected to appear before the Senate Banking Committee, a panel that includes Massachusetts Democratic Senator Elizabeth Warren, who has sharply criticized financial regulators in the Trump administration.

This is the first time in nearly 40 years that a banking executive has been responsible for the Office of the Comptroller of the Currency, or OCC, an independent financial regulator within the Treasury Department that regulates major banks across the country. Consumer groups are nervously watching what Otting is going to do.

His track record as a banker makes them think.

Otting had been the managing director of OneWest Bank, which drew criticism for its aggressive foreclosure practices after the real estate crash. He worked there with Steven Mnuchin, now Secretary of the Treasury. OneWest was then sold and became part of the CIT group. As head of the OCC, Otting recuses himself from issues involving the CIT group, the OCC said.

Christopher Peterson, of the Consumer Federation of America, is also particularly concerned about a move by Otting as banking regulator – encouraging big banks to compete with payday lenders.

These are short-term, smaller loans, often a few hundred dollars, to pay for things like unexpected car repairs, for example. These types of loans often carry very high interest rates, which lenders say helps protect against the risk that the borrower will not be able to repay the loan.

“With so much access to capital and bank branches across America, we have the potential to have more and more predatory loans,” Peterson said.

Under the Obama administration, banks were prevented from making these loans. Today, these small loans are primarily the purview of payday and online loan transactions.

When Otting testified before the House financial services committee on Wednesday, the Tories said it would be good if reputable mainstream banks started giving small, short-term loans to working class people again.

“Sixty-three percent of Americans don’t have enough in their savings account to cover an emergency expense of $ 500, so it’s extremely important to make sure Americans have access when needed,” Rep. Sean Duffy, a Republican from Wisconsin, said at the hearing.

Otting agreed, saying the initiative was close to his heart.

“We forced the banks out of this space in 2013 and, for my life, based on supply and demand, if you take a lot of the supply out, which has usually happened, it ‘is that consumers have taken over this deal, ”Otting said. .

He suggested that if banks were to compete with payday lenders, it would help Americans in need of emergency cash get better loan terms and better interest rates than those currently available.

“By bringing banks back into this space, I think they get fair and more economically efficient pricing for loans,” Otting told House lawmakers. He said borrowing from banks could also help people improve these consumers’ credit scores.

This is also the point of view of the banking sector. “If the banks can do more, then a lot more of these loans will be honored in a very reliable way,” said Wayne Abernathy, executive vice president of the American Bankers Association.

But Peterson isn’t so sure. He said that in the past, when banks made this type of loan, some charged triple-digit interest rates.

For example, he said, Wells Fargo offered a financial product called a “deposit advance” that consumer groups viewed as a predator because it charged an interest rate of around 300% plus additional fees.

Another concern for consumers and civil rights groups is that Otting has said he wants to “modernize” the Community Reinvestment Act. Otting spoke of changing the law’s compliance rules to “increase lending, investment and financial education where they are needed most.”

But Jesse Van Tol, CEO of the National Community Reinvestment Coalition, said he was concerned that Otting appeared to be trying to make it easier for banks to meet CRA demands.

“We are concerned that the OCC wants to water down the rules,” Van Tol said. “Regulators should strive to establish and enforce rules that solve the problem of discrimination in lending…, not make life easier for banks making record profits.”

And the House Financial Services Committee’s top Democrat, Representative Maxine Waters of California, said the Community Reinvestment Act is important when it comes to preventing discrimination in lending.

“It is absolutely essential that the ARC, which was designed to fight against redlining, is not weakened to free the banks from their obligations,” she said at the hearing.

Consumer advocates like Peterson say it’s still unclear what the OCC will allow in the future. And they don’t know how aggressive Otting will try to be to roll back regulations and consumer protections.

“I think it’s a little too early to say what Otting’s approach will be,” said Peterson. “He didn’t happen like a wrecking ball like Scott Pruitt at the EPA or Mick Mulvaney at the Consumer Financial Protection Bureau.”

Members of the Senate Banking Committee are expected to pressure Otting on Thursday to try to find out more about his next moves.

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