Short title

This Act may be cited as the

Fostering American Independence from Regressive and Abusive Credit Transactions Act of 2008

or the FAIR Act.

Maximum interest rates; prohibition on payday lending

Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by adding at the end the following:

140.

Maximum rate of interest; prohibition on payday lending

(a)

Interest limit

No covered creditor may make an extension of credit to a consumer with respect to which the annual percentage rate, as defined in subsection (b), exceeds 36 percent, or such lower limit as is provided under otherwise applicable State or Federal law, including section 207 of the Servicemembers Civil Relief Act (50 U.S.C. App. 527). (b)

Payday loan prohibition

Notwithstanding any other provision of law, no covered creditor may— (1)cash or advance money for a post-dated check in exchange for a fee or other payment of interest, other than as otherwise authorized for the payment of a preexisting debt; or (2)hold a check, require electronic access to an account at a financial institution, or hold title to personal property (except in connection with the purchase or rental of such personal property) as collateral for a loan or other extension of credit. (c)

Definition of annual percentage credit rate and covered creditor

For purposes of this section— (1)the annual percentage rate includes all charges payable directly or indirectly incident to, ancillary to, or as a condition of the extension of credit, including— (A)any payment compensating a creditor or prospective creditor for an extension of credit or making available a line of credit, or any default or breach by a borrower of a condition upon which credit was extended, including fees connected with credit extension or availability, such as numerical periodic rates, late fees, creditor-imposed not sufficient funds fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds, over limit fees, annual fees, cash advance fees, and membership fees; (B)all fees which constitute a finance charge, as defined by rules of the Board in accordance with this title; (C)credit insurance premiums, whether optional or required; and (D)all charges and costs for ancillary products sold in connection with or incidental to the credit transaction; and (2)the term covered creditor means a creditor other than an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) or an insured credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)). (d)

Mandatory disclosures

In addition to any other disclosures required by this title, a covered creditor shall, with respect to an extension of consumer credit, provide to the consumer in writing, at or before the issuance of such credit— (1)a statement of the annual percentage rate applicable to the extension of credit; and (2)a clear description of the payment obligations of the consumer. (e)

Relation to State law

Nothing in this section may be construed to preempt any provision of State law that provides greater protection to consumers than is provided in this section. (f)

Civil liability and enforcement

In addition to remedies available to the consumer under section 130(a), any consumer credit transaction made in violation of this section shall be null and void, and not enforceable by any party in any court or alternative dispute resolution forum, and the creditor or any subsequent holder shall promptly return to the consumer any principal, interest, charges, and fees, and any security interest associated with such transaction. Notwithstanding any statute of limitations or repose, a violation of this section may be raised as a matter of defense by recoupment or set off to an action to collect such debt or repossess related security at any time. (g)

Violations

Any person that violates this section, or seeks to enforce an agreement made in violation of this section, shall be subject to, for each such violation, 1 year in prison and a fine in an amount equal to the greater of— (1)3 times the amount of the total accrued debt associated with the subject transaction; or (2)$50,000. (h)

State attorneys general

An action to enforce this section may be brought by the appropriate State attorney general in any United States district court or any other court of competent jurisdiction, not later than 3 years after the date of the violation, and may obtain injunctive relief.

Small-dollar loan program

(a)

Establishment

The Federal Deposit Insurance Corporation (in this Act referred to as the Corporation) shall establish, by rule, a program to encourage insured depository institutions to incorporate small consumer loans into their regular banking services. (b)

Program components

The loan program established under this section shall— (1)be voluntary in nature; (2)allow for loan amounts of $1,000 or less; (3)provide for— (A)amortization periods of not longer than 36 months, in the case of closed end credit plans; and (B)minimum regular payments that are designed to reduce outstanding principal amounts, in the case of loans under an open end credit plan; (4)prohibit the imposition of— (A)prepayment penalties; and (B)origination or maintenance fees that exceed the true cost of the loan to the financial institution; and (5)provide for an automatic savings component. (c)

Community reinvestment act treatment

Participation in the loan program established under this Act shall be a factor in the determination by the appropriate Federal financial supervisory agency of whether an insured depository institution is meeting the credit needs of its community for purposes of the Community Reinvestment Act of 1977. (d)

Definitions

As used in this section— (1)the term appropriate Federal financial supervisory agency has the same meaning as in section 803 of the Community Reinvestment Act of 1977 (12 U.S.C. 2902); (2)the term closed end credit plan means an extension of credit for a fixed period of time, other than an extension of credit that is secured by a dwelling or other real property; (3)the term insured depository institution has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and (4)the term open end credit plan has the same meaning as in section 103 of the Truth in Lending Act (15 U.S.C. 1602). (e)

Regulatory actions

The Corporation shall issue such regulations as may be necessary to carry out this section, including with respect to the definition of terms (other than as provided in subsection (d)).

Study and report on best practices

(a)

Study

The Federal Deposit Insurance Corporation and the National Credit Union Administration shall each conduct a study of best practices to provide incentives for mainstream financial institutions to provide small dollar amount loans to consumers, including innovative State and local programs, private sector, and not-for-profit initiatives. (b)

Report to Congress

Not later than 180 days after the date of enactment of this Act, the Federal Deposit Insurance Corporation and the National Credit Union Administration shall each submit a report to Congress on the results of the study conducted under subsection (a).