Patrick McHenryChairman

Washington, April 30, 2019 -

WASHINGTON, D.C. –  Congressman Blaine Luetkemeyer (MO-03), Ranking Member of the Subcommittee on Consumer Credit and Financial Institutions, delivered the following opening statement at a hearing on short-term, small-dollar lending:

Thank you Mr. Chairman.

Over the years, I’ve heard countless stories from my constituents who rely on small-dollar, short-term loans in times of financial hardship. Whether it is an unexpected auto repair, hospital bill, or a broken air conditioner, many families simply have nowhere else to turn. Each year more than 12 million Americans utilize small-dollar loans when they need short-term financial assistance.

Unfortunately, the reputation of the entire small-dollar lending industry has been sullied by a few bad actors exercising deceptive lending practices. This small group has caused an industry that provides access to credit for millions of Americans to be villainized. In fact, under the previous Administration, DOJ and FDIC officials specifically singled out payday lenders under Operation Choke Point and attempted to cut off these legally operating businesses from the financial services industry.

My colleagues on the other side of the aisle will call for the payday industry to be severely regulated on the federal level and are proposing legislation that will place additional requirements on short term loans. I would caution against this approach.

History has shown that regulations have consequences. We have seen over the years, traditional financial firms have largely gotten out of the business of small-dollar, short-term loans due to the cost of regulations. There is clearly a demand for short term lending products, particularly for low to moderate income individuals. According to the Federal Reserve, four in ten adults in 2017 would be forced to borrow, sell possessions, or not be able to pay if faced with a $400 emergency expense. Before this Committee considers any legislation related to the requirements and regulations of short-term lending, we must fully examine how it will impact the industry and  the consumers who depend on these products.

I am particularly concerned about a draft proposal before the Committee today which would cap the APR at 36 percent for all consumer credit transactions. First, an APR is not an effective tool to measure a loan that typically lasts two to four weeks. Second, the interest attached to these loans should be viewed as a service fee. If a plumber comes into my house and fixes one pipe in 30 minutes, and then charges me fifty dollars – did I pay one hundred dollars an hour, or did I pay a fifty dollar service fee?

There’s no question, consumers should be protected by effective regulations that safeguard their financial well-being. However, regulations that curb choice and stifle access to credit have no place in our economy. According to the CFPB’s February 2019 rulemaking on small-dollar lending, and the majority’s hearing memo, 17 states and the District of Columbia have either banned payday loans or have regulations that do not allow payday lenders to sustain their business models.

Restricting the availability of short-term credit will not solve the financial problems facing so many American families, but it will push them towards riskier and unregulated products. If the federal government takes a similar approach to these 17 states, and small-dollar, short-term products are regulated out of existence, where will the 12 million Americans who utilize small-dollar loans go to get the financial services they need? This is a question that this Subcommittee and the witnesses in front of us must focus on today.

Thank you, Chairman Meeks for holding this hearing and I thank the panel for appearing with us. I look forward to a robust discussion.