March 22, 2020
The Honorable Mitch McConnell
Majority Leader
United States Senate
Washington, DC 20510
Re:

The Honorable Charles Schumer
Minority Leader
United States Senate
Washington, DC 20510

Term Asset-Backed Securities Loan Facility 2020:
Proposed Expansions & Improvements to TALF 2008

Dear Majority Leader McConnell and Minority Leader Schumer:
The American Financial Services Association (AFSA) 1 and the MarketPlace Lending Association (MLA)2
appreciate your rapid response to COVID-19. The pandemic has disrupted daily life across the country. Just as
devastating is the economic uncertainty the virus has engendered. Specifically, the virus has significantly
disrupted the normal functioning of credit markets, limiting the ability of non-bank lenders to serve their core
customers: hard-working Americans and small businesses across the country drawing on or seeking to draw on
access to credit. These groups have credit needs that are not well-served by traditional banks, but are well-served
by vehicle finance companies, retail installment sales finance companies, consumer installment lenders,
marketplace lenders, student lenders, and financial technology companies. Our customers are using these loans
for a number of purposes including debt consolidation, medical bills, emergency expenses, auto purchase and
repair, and home improvement.
An updated Term-Asset Backed Securities Loan Facility (TALF) program (which we are calling TALF 2020) –
with credit support from the Treasury and modest changes to reflect the evolution of our economy and markets
since 2008 – will help the economy withstand the necessary but difficult measures needed to halt the spread of
COVID-19, and emerge intact and poised for a strong recovery.
Below, we outline why TALF 2020 is needed to help us serve our customers in their time of need and what
changes we suggest to the program.
I.

Background – Why We Need TALF 2020

Americans rely on non-bank credit to make ends meet, finance major purchases, and for emergency expenses.
Non-bank lenders in turn rely on the capital markets to fund loans and continue to extend credit. We sell assetbacked securities to the world’s largest investors and money managers to raise funds to lend to everyday
Americans and small businesses. According to the Federal Reserve, non-bank lenders held over $600 billion in
consumer credit, not including mortgages, at the end of 2019.

Founded in 1916, AFSA is the national trade association for the consumer credit industry, protecting access to credit and consumer
choice. AFSA members provide consumers with many kinds of credit, including traditional installment loans, mortgages, direct and
indirect vehicle financing, payment cards, and retail sales finance.
2
MLA represents the online marketplace lending industry. The Association’s goal is to promote a transparent, efficient, and customerfriendly financial system by supporting the responsible growth of marketplace lending, fostering innovation in financial technology, and
encouraging sound public policy.
1

 2
Unfortunately, the economic uncertainty of the partial shutdown of the economy in order to protect America from
COVID-19 is impacting the capital markets and impeding the regular flow of capital from global investors and
money managers to non-bank lenders and ultimately to everyday Americans. American families seeking credit
for necessary expenditures are among the groups most affected by this credit market dislocation.
A new TALF will help American consumers. The original TALF was announced by the Federal Reserve Bank of
New York (FRBNY) in November 2008 with the goal of unfreezing the previously functioning capital markets
for consumer and small business credit. While the specific challenges facing the U.S. economy are very different
during the current crisis, it is instructive to review the success of TALF during the global financial crisis. The
program provided $200 billion in non-recourse financing to investors in the AAA-rated tranches of asset-backed
securities (ABS) to create additional liquidity in a market that was impacted by widespread doubts on the
underwriting quality of the underlying loan collateral.
This financing helped make credit more available to consumers and small businesses on more favorable terms by
providing liquidity to the market and improving market conditions for ABS more generally. The FRBNY
extended loans in an amount equal to the market value of the ABS less a haircut and these loans were secured at
all times by the ABS. TALF began operations in March 2009 and operated for new ABS issuance until June 2010.
Over the life of the program, all TALF loans were repaid in full at or before their respective maturity dates. The
FRBNY did not incur a loss on any TALF loans. As all TALF loans were repaid in full, no TALF collateral was
surrendered to the FRBNY, and TALF LLC acquired no such assets during its existence.
The proposed Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains significant support
and loan guarantees to support America’s small businesses, but it is critical that the Federal Reserve ensures that
any future TALF program provides liquidity support to the market for consumer credit and that Congress
legislates funding through the Treasury for credit support of a TALF 2020 program.
II.

Suggestions for TALF 2020

Many non-bank lenders would be precluded from participating in TALF if it is relaunched on the same terms and
conditions as the 2008 program. Due to the evolving market for consumer and small business credit since the
financial crisis, consumer installment loans 3 play a much more vital role in the economy than they did at that
time. Any new TALF program should include unsecured consumer loans as eligible collateral and should include
investment-grade securities.
In the bullet points below, we outline key changes to allow lenders with securitization platforms to participate in
TALF and continue to provide credit to consumers during this public-health crisis. It is critical to recognize that
the problems of the past crisis (widespread distrust of ABS and the underwriting of the underlying loans) are not
the problems of today.
Today there are no concerns with the underwriting quality of the underlying loans and ABS are performing. The
primary concern in the markets is the impact of the economic disruptions from COVID-19 public health measures

To be clear, consumer installment loans are distinct from payday loans. Installment loans are safe and affordable loans with fixed-rate,
fully-amortized payments. They are radically different from payday loans in the way they are structured, priced, and regulated. Unlike
payday lenders, installment lenders do not charge prepayment penalties for early repayment or prepayment and do not require large,
one-time balloon payments.
3

 3
on creditworthy borrowers. We must give these lenders and borrowers a bridge across the income gap resulting
from a halt of economic activity related to necessary but difficult steps to stop the spread of the virus.
Lenders and investors must be able to obtain financing for their loans, in order to continue to provide credit during
this time. It is also important to note that many unsecured loans to these borrowers are concentrated in the gig
economy, or to self-employed borrowers, and may not be eligible for other stimulus programs and employee
protections passed or under consideration by Congress, including unemployment benefits which are geared
toward W-2 employees.
Key Changes to Allow Lenders with Securitization Platforms to Participate in TALF:
•

Amend Sec. 4003, Emergency Relief and Taxpayer Protections, of the CARE Act. To ensure that
consumers continue to have access to the loans they need, add the italicized language to this section: “(3) that
are not used as provided under those paragraphs shall be available to make loans, loan guarantees, and other
investments in support of programs or facilities established by the Board of Governors of the Federal Reserve
System for the purpose of providing liquidity to the financial system that supports lending to eligible
businesses, States, or municipalities or to consumers by— …”

•

Expand Eligible Collateral to Include Consumer Installment Loans. Enabling consumer loan ABS to
qualify for the program is essential to keep loans flowing to consumers. Non-bank lenders focused on personal
loans have grown significantly since 2008 and unlike then, unsecured personal loans exist as an asset class in
the securitization market. Installment lenders serve millions of consumers each year. Thus, it is important that
any new TALF program specifically include these loans as eligible collateral in order to ensure the supply of
new loans to creditworthy borrowers. We would also like to assure that “major NRSRO” under the original
TALF program would include all of the rating agencies that regularly rate these transactions.

•

Expand Required Credit Ratings to all Investment Grade Ratings. Non-bank lenders who sponsor ABS
transactions tend to have less than AAA credit ratings on the senior bonds issued in their ABS transactions.
Some rating agencies are unwilling as a policy matter to give AAA ratings to consumer loan ABS transactions.
Even for lenders who are able to achieve a AAA credit rating on senior bonds, we do not know if this will
continue as the economic effects of the pandemic wear on. It is essential for Americans for TALF 2020 to be
expanded with required credit ratings that include any investment grade rating with appropriate risk-based
haircuts. In addition, only one rating should be required, not two. Not all rating agencies provide ratings on
consumer loan ABS.

•

Expedite Operational Start of TALF 2020 by Eliminating Time-consuming Requirements. It took
several months for TALF 2008 to become operational after it was announced. A good deal of the delay was
due to the requirement for the ABS sponsor to deliver an attestation opinion, in the form prescribed by the
FRBNY, from a nationally recognized independent accounting firm. It would be an entirely new process for
marketplace lenders and others to meet this requirement and would significantly slow things down. Further,
these opinions were a significant expense for sponsors and thus detracted from the TALF benefits a sponsor
could pass on to consumer borrowers. We believe this requirement should be eliminated due to its heavy
burden in this time of urgency, especially since there is no market concern about the underwriting quality of
unsecured consumer loans and the lenders’ operations are limited to the U.S. Further, the TALF 2008
program was delayed for a few months for the creation of a customer form to be used by Primary Dealers
with their investor customers, then the negotiations of those individual agreements between the Primary

 4
Dealers and those customers. We suggest that to expedite the start of the program, certain TALF-required
documents, including TALF-related agreements, could be provided in final, non-negotiable form at the time
the new TALF 2020 is announced.
•

Allow Private ABS and Structured Finance Securities to be Eligible for TALF 2020. TALF 2008 was
extended to publicly registered and privately offered ABS. Because the ABS platforms of many non-bank
lenders are generally privately offered, usually under 144A or other private exemptions, it is important that
TALF 2020 also include privately offered ABS.

•

Allow ABS Investors to Borrow under the TALF After the Closing Date of the ABS Issuance. Depending
on market conditions, non-bank lenders and issuers of ABS may initially retain subordinated notes or residual
certificates and later, sometimes several months later, sell those securities to investors. It would be very
helpful if TALF 2020 makes it clear that these later acquired securities can still obtain a TALF loan.

We appreciate your attention to this critical need in our credit markets.
Sincerely,
American Financial Services Association
MarketPlace Lending Association