Consumer Credit Access, Innovation, and Modernization Act

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.

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.

A business plan shall be established covering at least the initial 3-year period of operation as a commercially viable entity with its primary business activities being to serve the needs of underserved consumers and small businesses for credit and related financial services through the Internet and electronic devices and not through brick-and-mortar locations, and such plan shall—

A competent and experienced management team of good moral character with expertise in and a commitment to serving the credit needs of underserved consumers, experience in offering financial services products to consumers through the Internet or electronic devices, and awareness and understanding of applicable legal requirements shall be established.

Adequate capital structure relative to the operational and financial assumptions and business plans of the applicant, including the cost of utilizing advanced technology and information management systems for its operating and compliance needs, shall be established.

No Internet creditor shall be directly or indirectly owned or controlled by any person unless—

Any other requirements provided for under this Act or in regulations prescribed by the Comptroller consistent with the purposes of this Act.

adopt and use a corporate seal;

have succession from the date its charter is issued until such time as it be dissolved by the act of its shareholders owning two-thirds of its stock, or until its charter is revoked by the Comptroller, or until terminated by an Act of Congress, or until its affairs are placed in the hands of a receiver and finally wound up by the receiver in accordance with title 11, United States Code, or other applicable law;

borrow money, issue stock, and enter into contracts;

sue and be sued and complain and defend, in any court of law and equity of competent jurisdiction, as fully as natural persons;

elect or appoint directors, and by its board of directors to appoint a president, vice president, and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places;

prescribe, by its board of directors, bylaws not inconsistent with law, regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers appointed, its property transferred, its general business conducted, and the privileges granted to it by law exercised and enjoyed;

hire employees and consultants and fix their compensation, define their duties, and give such persons appropriate authority to carry on its business operations;

enter into joint ventures and other business partnerships with other Internet creditors, depository institutions, State-chartered or licensed nondepository creditors, third-party service providers and vendors, and other parties to promote or facilitate providing as herein authorized commercially viable financial products or services to underserved consumers and small businesses;

contribute to community funds, or to charitable, philanthropic, or benevolent instrumentalities conducive to public welfare, such sums as its board of directors may deem expedient and in the interests of the Internet creditor;

invest in, or buy or lease, real estate or tangible personal property, including vehicles, equipment, furnishings and furniture, to be used by the Internet creditor in conducting business related operations authorized under this Act;

provide loans and other financial services only through the Internet and electronic devices as its board of directors or duly authorized officers or agents may determine, in accordance with this Act and regulations prescribed pursuant to this Act, are appropriate for providing financial products or services to consumers, including underserved consumers, and to small businesses in accordance with the provisions of this Act and regulations prescribed pursuant to this Act;

exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental, implied, or reasonably necessary powers as may be appropriate to carry on its corporate operations and the business of providing commercially viable financial products or services to consumers, including underserved consumers and small businesses in accordance with the provisions of this Act and regulations prescribed pursuant to this Act;

be affiliated with, or owned by, an insured depository institution, nondepository creditor, nonprofit organization, or other qualified entities unless otherwise limited by this Act or regulations prescribed pursuant to this Act;

acquire or merge with other Internet creditors; and

exercise such other powers as may be reasonably necessary or appropriate to offer financial products or services as provided for pursuant to this Act, or provided for through regulations prescribed by the Comptroller pursuant to the provisions of this Act.

regulate financial products or services that are provided or offered by an affiliate company or another entity that the Internet creditor has a business relationship with, but the Internet creditor does not provide or offer to underserved consumers or small businesses in accordance with this Act;

determine, directly or indirectly, pricing applicable to an extension of credit offered by an Internet creditor to a consumer or small business pursuant to this Act through a usury limit, a cap on the rate of interest, fees, or other charges, or otherwise;

prohibit, directly or indirectly, the offering of a financial product or service to underserved consumers or small businesses by an Internet creditor pursuant to this Act unless a determination is made by the Comptroller or Director, based on a fair and reasonable determination of the facts and circumstances regarding the financial product or service, that offering such a product or service will seriously harm the financial interests of underserved consumers or small businesses; or

presume or conclude that a credit extension offered to underserved consumers by an Internet creditor under the provisions of this Act, regulations prescribed by this Act, and such other statutes and regulations as either may have administrative and enforcement authority for is unfair, abusive, or otherwise inappropriate solely on the basis that the interest rates and other charges to such consumers, who typically pose relatively high credit risks, are significantly higher than those on credit extensions offered to other consumers who do not pose such high credit risks.

a descriptive summary of the actions of the Comptroller and the Director during the reporting period to carry out the purposes of this Act;

the number of charter applications received by the Comptroller;

the number of charter applications that were approved, disapproved, conditionally approved, or are pending and a detailed explanation of each disapproval or conditional approval;

a description of any further actions the Comptroller or the Director believes should be undertaken to—

any recommendations the Comptroller or the Director may have regarding other legislative measures that would improve the ability of an Internet creditor to provide additional financial products or services to underserved consumers or small businesses.

a person directly or indirectly or acting through 1 or more other persons owns, controls, or has power to vote 25 percent or more of any class of voting stock of a company;

a person controls in any manner the election of a majority of the directors or trustees of a company; or

the Comptroller makes a determination, after notice and opportunity for hearing, that a person directly or indirectly exercises a controlling influence over the management or policies of a company.

a consumer credit transaction where the performance of the credit obligation is secured by an interest in property; and

such transaction is recognized as secured by State or Federal law, provided, however, a consumer’s authorization for an electronic fund transfer as a payment on a financial product or service shall not be considered, for purposes of this Act, as security on a credit transaction.

a State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, American Samoa, and the United States Virgin Islands.

does not have a checking or savings account with an insured depository institution; or

has a deposit account with an insured depository institution, but has limited or no ability to obtain small personal loans or other nondepository financial products or services from an insured depository institution.