‘Wish This Whole Debate Was A Little Bit More Honest’: JD Vance Pokes Holes In Junk Fee Proposal

4 months ago

During a Senate Banking Committee hearing on Thursday, Sen. J.D. Vance (R-OH) questioned witnesses about fees and consumer debt.

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Transcript

00:00 Thank you, Senator Test. Senator Vance of Ohio is recognized. Thank you, Mr. Chairman.

00:05 Thanks to you and the Ranking Member. I think it's important just to sort of

00:08 note that this entire conversation about late fees, overdraft fees, and so forth

00:12 takes place in the context of extraordinarily high interest rates. I'm

00:18 39 years old. It's pretty much the worst interest rate environment since I was

00:23 a toddler. I mercifully don't remember anything about interest rates when I was

00:27 three years old. So I think we have to sort of be careful here about this

00:32 particular proposal or at the very least appreciate some of its implications.

00:37 And Ms. Madry, I wanted to sort of direct this first question with you.

00:41 You obviously run a small bank and I appreciate you being here. Or I should say

00:46 small credit union, right? Right. Maybe you could just sort of explain how,

00:52 especially in the context of higher interest rates, what this particular

00:56 proposal would mean for your ability to offer debt and credit services to sort

01:02 of people, especially low-income people.

01:05 So in the context of my credit union, first off, we're capped at 18% interest

01:15 rates. Yeah. And we really try very hard to keep our interest rates very low. I'm

01:23 in a market where it is overbanked and underserved and so I have

01:30 extreme market pressures to have low rates in order to attract borrowers. And

01:37 we also, as a credit union, we believe in giving profits back to our members. So

01:43 liquidity is tight. So I am paying higher rates on my members' deposits because we,

01:51 as a credit union, I am reliant upon the deposits that my members make to

01:56 provide the liquidity that I need to lend out. So while the interest rates

02:03 have climbed, my members have not felt much of that pinch. Again, I serve a

02:09 low-income population and it is important to me to make sure that

02:15 financial services are affordable to my members. The fee income really helps to

02:21 offset the operating cost that goes along with collecting on overdraft when

02:28 a member overdraft draws their account. We have to send out letters. My staff is

02:34 their calling members. It helps when members are coming in because their

02:40 account is overdrawn because of a circumstance or a life event. As I said,

02:46 my staff will take the time to talk to the member, understand the situation and

02:53 help them to find a solution. I can tell you that the way we operate in our

02:59 credit union is if a member's account is overdrawn, we will do everything that we

03:04 can to help them to get back in good standing. We weigh fees whenever possible.

03:11 If a member comes in and asks, we have other alternatives that we make

03:16 available to members. However, when you're serving a population that is vulnerable,

03:22 quite often they don't want loan products. They feel more comfortable with

03:28 this service because it prevents them propelling into perpetual debt.

03:34 I appreciate that, Ms. Madarena. I want to pick up on that basic point, Mr.

03:38 Rust. I know you're an advocate of this proposal. I want to just understand

03:43 this basic question. Do you think that consumers, especially lower-income

03:48 consumers, will have less access to credit if this proposal becomes law, the

03:55 junk fee proposal? Do you mean specifically the credit card late fee rule?

03:58 Yes. Thank you for the question. I personally think that credit cards are

04:04 among the most profitable sources of business for institutions. The Y14

04:10 data from the Federal Reserve talks about returns on assets that are three

04:14 to four times greater than other forms of commercial banking. There's examples

04:18 of institutions with profit margins of over 40 percent on their credit card

04:22 business. In my view, this is a question of will credit cards be

04:27 exorbitantly profitable or just incredibly profitable? I understand

04:32 that. I don't necessarily disagree with the underlying argument, Mr. Rust.

04:36 I guess my point is, look, when you take a product that's, even if I assume

04:41 your framing is correct and say it's very profitable to moderately

04:44 profitable, if you make something more expensive, if you take it from very

04:49 profitable to just somewhat profitable, don't you fundamentally make it less

04:55 likely that people are going to offer those services? My point here is not

04:59 to put you in a tough spot. I guess my argument is I think it would be better

05:04 if we were just honest about the debate we were actually having. This

05:08 proposal will inevitably lead to less credit options for lower-income people.

05:13 I wish its advocates would just lean into that and say, "Yes, that's exactly

05:16 what it's going to do." In fact, we think that's a good thing as opposed

05:19 to hiding from the fact that it will mean less consumer credit for low-income

05:23 people. I guess a related point is if the goal here is to provide options and

05:31 to reduce the debt spiral that we all know people in low-income situations

05:34 sometimes experience, I maybe wish we just tried to deal with that problem

05:38 directly as opposed to the backdoor way of making credit more expensive and

05:43 consequently less available to people. I just wish this whole debate was a

05:47 little bit more honest about what we're really doing. What we're proposing to do

05:51 is to make consumer debt much less available to low-income people. Let's

05:56 just be honest about that and then have the debate about whether that's good or

05:58 bad or could be accomplished through other means. That's sort of my

06:01 point here. With that, Mr. Chairman, I'll stop. Thank you.

06:04 Senator Menendez of New Jersey is recognized.

06:06 Thank you, Mr. Chairman.

06:07 Ample research shows that

‘Wish This Whole Debate Was A Little Bit More Honest’: JD Vance Pokes Holes In Junk Fee Proposal

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