Chief Deputy Whip Patrick McHenry (R, NC-10), the Vice Chairman of the House Financial Services Committee, yesterday introduced two bills: H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016 and H.R. 5725, the IRS Data Verification Modernization Act of 2016. These bills restore consistency in our lending laws to reflect the new realities of financial innovation, and fix the problems with the IRS’s manual income verification process so that small businesses and consumers can receive more accurate credit assessments faster.

“Innovation in financial services has created more convenient and secure ways to meet the demands of American consumers," said McHenry. "For these to succeed, however, Washington must rethink its own laws and regulations to keep up with the growth and creativity in the private sector."  

"These two bills are important first steps in our efforts to harness technology to make lending more accessible for all Americans," McHenry continued. "Now is the time for Congress to take a leading role in supporting the expansion of safe and affordable credit by embracing innovation and making our lending laws more consistent.”

Yesterday, McHenry spoke with the Wall Street Journal about both bills. You can read that story here. Both bills are part of the Innovation Initiative which was jointly launched by Congressman McHenry and Majority Leader Kevin McCarthy (R, CA-23).

BACKGROUND:  

H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016 reaffirms the longstanding legal precedent under the National Bank Act and the Federal Deposit Insurance Act that federal law preempts a loan’s interest as valid when made.  

The Supreme Court recently declined to hear the case Madden v Midland.  In Madden, the Second Circuit held that the National Bank Act, which preempts state usury laws regulating the interest a national bank may charge on a loan, does not have a preemptive effect after the national bank has sold or otherwise assigned the loan to another party.  This reading of the National Bank Act was unprecedented and has created uncertainty for fintech companies, banks, and the credit markets.

H.R. 5725, the IRS Data Verification Modernization Act of 2016 requires the IRS to automate the Income Verification Express Services process by creating an Application Programming Interface (API), which would reduce paperwork and the waiting period burdens on borrowers. 

As part of the loan and mortgage processes for consumers and small businesses, each applicant completes an IRS form called a “4506-T,” which gives the lender the right to access a summarized version of their tax transcript, which is used to confirm certain data points on their application.  According to industry reports, this manual process at the IRS takes 2-8 days, which creates needless delay for fintech companies and banks that rely on leveraging data and technology to make faster, informed decision for consumer and small business lending.