[Senate Hearing 110-484]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-484
 
                  PREDATORY LENDING IN INDIAN COUNTRY

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 5, 2008

                               __________

         Printed for the use of the Committee on Indian Affairs




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                      COMMITTEE ON INDIAN AFFAIRS

                BYRON L. DORGAN, North Dakota, Chairman
                 LISA MURKOWSKI, Alaska, Vice Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
KENT CONRAD, North Dakota            TOM COBURN, M.D., Oklahoma
DANIEL K. AKAKA, Hawaii              JOHN BARRASSO, Wyoming
TIM JOHNSON, South Dakota            PETE V. DOMENICI, New Mexico
MARIA CANTWELL, Washington           GORDON H. SMITH, Oregon
CLAIRE McCASKILL, Missouri           RICHARD BURR, North Carolina
JON TESTER, Montana
      Allison C. Binney, Majority Staff Director and Chief Counsel
     David A. Mullon Jr., Minority Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 5, 2008.....................................     1
Statement of Senator Dorgan......................................     1
Statement of Senator Tester......................................     4

                               Witnesses

Allen, Hon. W. Ron, Secretary, National Congress of American 
  Indians; Chairman, Jamestown S'Klallam Tribe...................    17
    Prepared statement...........................................    20
Barkley, Jr., John, Vice Chairman, Umatilla Tribal Water 
  Commission; Enrolled Cayuse Tribal Member, Confederated Tribes 
  of the Umatilla Indian Reservation (CTUIR).....................    34
    Prepared statement...........................................    35
Brokke, Darwin, President/CEO, Citizens Community Credit Union...    27
    Prepared statement...........................................    29
DeCoteau, Jerilyn, Director of Policy, First Nations Development 
  Institute......................................................     5
    Prepared statement with attachments..........................     8
Fulmer, Jamie, Director of Public Affairs, Advance America, Cash 
  Advance Centers, Inc.; Representative, Community Financial 
  Services Association...........................................    36
    Prepared statement with attachments..........................    39
Gambrell, Donna J., Director, Community Development Financial 
  Institutions Fund, U.S. Department of the Treasury.............    22
    Prepared statement...........................................    23

                                Appendix

Cirillo, Patricia, Ph.D., President, Cypress Research Group, 
  prepared statement.............................................    61
Hall, Tex G., Former Chairman, Three Affiliated Tribes--Mandan, 
  Hidatsa, and Arikara; Former President, National Congress of 
  American Indians, prepared statement...........................    67
Jurrius, John P., President/CEO, Native American Resource 
  Partners, LLC, prepared statement..............................    69
National Congress of American Indians (NCAI), prepared statement.    74
Shuravloff, Marty, Executive Director, Kodiak Island Housing 
  Authority, prepared statement on behalf of the National 
  American Indian Housing Council (NAIHC)........................    72
Umatilla Reservation Housing Authority Staff, prepared statement.    65


                  PREDATORY LENDING IN INDIAN COUNTRY

                              ----------                              


                         Thursday, June 5, 2008


                                       U.S. Senate,
                               Committee on Indian Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
562, Dirksen Senate Office Building, Hon. Byron L. Dorgan, 
Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    The Chairman. We will call the hearing to order.
    This is a hearing of the Indian Affairs Committee. The 
hearing today is on the subject of predatory lending in Indian 
Country.
    As I begin the hearing, I want to mention that my 
colleague, Senator Murkowski, the Vice Chairman, is at another 
hearing and I believe will be here later in the morning.
    I wanted to mention as well that I will be contacting other 
members of the Indian Affairs Committee in the coming days. I 
spoke to Senator Murkowski last evening about a subject that 
this Committee has dealt with previously, and that is what is 
called the Indian Affairs Jails Report. In February of 2006, 
the Bureau of Indian Affairs contracted with Shubnum Strategic 
Management Applications to assess the conditions and the needs 
of tribal jails and to recommend improvements.
    Now, I know from first-hand experience and others know that 
the jails and the detention facilities on Indian reservations 
are in desperate condition and in some cases shameful 
conditions. We are working, on this Committee, to produce a law 
enforcement bill to try to deal with law enforcement issues on 
Indian reservations. That includes the question of how do you 
deal with detention facilities.
    I mentioned in February of 2006 the Bureau of Indian 
Affairs contracted with Shubnum Strategic Management 
Applications to do a review. In November of 2006, Shubnum 
Strategic Management Applications issued a first interim 
report. In March of 2007, that is a little over a year ago, the 
associate director of the BIA testified before the Federal 
Prison Rape Elimination Commission that the report ``would be 
available in a month or two months at the most.'' That was 
March of last year.
    In August of last year, the Director of the Office of 
Justice Services, Pat Ragsdale, met with our Committee staff, 
indicated the report would be released in December 2007. In 
September 2007, Mr. Ragsdale again speaks to our staff and says 
the jails report will be issued January 2008.
    In August and September 2007, the Shubnum Company issues a 
second and third interim reports, containing recommendations 
and evaluations. In December 2007, the consulting company 
issues the fourth interim report, containing enumerated costs 
associated with recommendations and plans for replacement of 
jails.
    On March 1st, I sent a letter to the Secretary of Interior 
and to Assistant Secretary Artman. I also then telephoned 
Secretary Kempthorne asking for a copy of the jails report. The 
taxpayer has paid for it, after all. On March 3rd, the request 
for copies of the report is denied by the Interior Department. 
But the Assistant Secretary for Indian Affairs offers to brief 
our Committee staff.
    The BIA informed us that the company gave Interior seven 
bound copies of the 1,000 plus page final report. On March 4th, 
the Interior officials gave us a response to my letter. They 
indicated the report will be released in early May, after the 
Secretary has been briefed and after the Office of Management 
and Budget reviews it.
    In April, that is two months ago, Secretary Kempthorne is 
briefed on the final jails report. In May, the Interior 
Department informs our Committee staff that the Office of 
Management and Budget has recalled all copies of the final 
report, returned them to the company to be stamped draft and 
place them in binders. The Committee staff has been given no 
time frame for when a copy will be given to the Committee.
    On May 23rd, the report was returned to the Office of 
Management and Budget, which then embargoes the report. We 
understand this embargo extends to all people outside the 
Office of Management and Budget, and the only copies of the 
report are at the Office of Management and Budget.
    I tell you all of this because we are working on law 
enforcement issues, on a piece of legislation. We have worked 
long and hard on it. We have had meetings all around the 
Country. Part and parcel of developing an approach to law 
enforcement improvement on Indian reservations is dealing with 
detention facilities and jails. The American taxpayer has paid 
a fair amount of money now to a company through the Department 
of Interior and the Bureau of Indian Affairs to do a consulting 
report to tell us the condition of jails on Indian 
reservations. We are now told that report is not available to 
this Committee, after having been promised last year on four 
occasions that it would be made available to this Committee.
    I indicated to Senator Murkowski last evening that it is my 
intention to present a subpoena to the Committee for a vote and 
issue a subpoena to the Department of Interior. I expect 
perhaps to do that at the next business meeting. But we will 
not allow this stuff to continue.
    The fact is, the taxpayers have paid for this report. It is 
outrageous and arrogant of the BIA and the Interior Department 
to withhold it. The report is completed. If the Office of 
Management and Budget doesn't like it, that is tough luck, in 
my judgment. The American taxpayers paid the bill and this 
Committee is going to get the product. We will get it if we 
have to subpoena it, and I am perfectly happy to issue that 
subpoena and will do so at the earliest opportunity.
    Let me, with that high note, indicate the purpose of this 
hearing, of course, is quite different. But I did want to state 
at the start what my intention is with respect to that report.
    Today, the Committee will examine the problem of predatory 
lending in Indian Country. The problem of predatory lending is 
not just limited to Indian Country. It is not unique to Indian 
communities. But the lack of financial services available on 
Indian lands makes tribal communities particularly vulnerable 
to the practice of predatory lending. The majority of Indian 
reservations, the people who live on those reservations, in 
many cases, have to travel at least 30 miles to reach an ATM or 
a branch bank. In fact, only 14 percent of Indian communities 
have some type of bank located in the community. And only 7 
percent have an open access to an ATM.
    The issue of predatory lending in Indian Country was 
brought to this Committee's attention and a request was made 
that we do some investigating by Senator Domenici, some months 
ago. He was concerned about the unusually large number of 
payday lenders located in Gallup, New Mexico, a border town on 
the Navajo Nation reservation. In Gallup, there was one payday 
lender for every 500 residents, and 70 percent of the customers 
for these payday lenders were Native American.
    We have heard many reports from constituents about the 
issue of payday lending. I don't attempt or would not want to 
tarnish all of those who are involved in this kind of lending. 
Some of it is very necessary, some are very responsible. I 
understand that.
    I also understand that there are predators in this area. 
That is why I use the term predatory lending. One woman on the 
Chippewa Indian Reservation at Turtle Mountain said, ``A lot of 
people are being terrorized and threatened by payday lenders 
located off the reservation.'' She told a story of her friend 
listing her as a reference when her friend took out the payday 
loan. When the friend was not able to pay back the payday loan, 
the lender began calling the woman and threatening her saying, 
``We're going to break some legs.'' Well, that is way outside 
the norm. But there are some bad actors here. We ought to find 
ways to get bad actors off the stage.
    She said they are attaching personal identification 
numbers, debit cards, and food stamp cards of tribal members in 
order to pay off loans. Again, I realize not all payday 
lenders, in fact, most would not be this aggressive. But the 
alleged behavior of abusive lenders, it seems to me, suggests 
we ought to take a look at it.
    Many people are unwilling to talk about the types of loans, 
because it causes stress and debt and embarrassment. We know 
there is a problem. The question is, what is the problem, how 
do we address it, what kinds of information can we develop to 
determine how this affects, in this case, Indian reservations. 
As you know, the Congress has already dealt with this in law 
with respect to military bases.
    So the Committee will hear from a number of witnesses about 
solutions. There is a growing movement to provide traditional 
financial services on Indian reservations. I think that is good 
news. Some initiatives are developing these institutions in 
coordination with increased financial education as well. That 
also is good news.
    I want to thank the witnesses whom we have invited here 
today to come and tell us about these issues. Before I turn to 
the witnesses, I want to turn to my colleague, Senator Tester.

                 STATEMENT OF HON. JON TESTER, 
                   U.S. SENATOR FROM MONTANA

    Senator Tester. Thank you, Chairman Dorgan. I apologize for 
being late. I thought there for a second maybe we changed the 
topic today.
    [Laughter.]
    Senator Tester. I am glad we are back on. And by the way, I 
support you in the endeavors that you talked about initially.
    I also want to thank you for holding this meeting. It is a 
very, very important one, and I thank the panelists for being 
here today. I apologize, I am going to have to skip out on you, 
because I have a conflict with this meeting.
    But make no mistake about it, money flowing into Indian 
Country and Indian communities is vital, whether it comes from 
the Government or whether it comes from individual Native 
Americans, or whether it comes from banking institutions. For 
economic development to work and to move forward, money is a 
necessary component.
    One of the most important goals for work on this Committee 
should be helping our Native American friends achieve economic 
self-sufficiency. While providing vigilant oversight, the 
Federal Government should give American Indians the tools the 
need to succeed and then get out of the way. Unfortunately, 
predatory lending practices are working against that goal. 
Predatory lending is a nationwide problem. It is a critically 
important issue for American Indians. The very survival of 
tribes depends upon the development of a comprehensive strategy 
for economic development and self-sufficiency. Many Native 
American people are poor, and when their few assets are taken 
from them, the dream of home ownership, of building stronger 
communities, then their dream of self-sufficiency is beyond 
hope.
    At a time when the economy is stagnant and the price of 
everything from food to gas to higher education is on the rise, 
predatory lending, sub-prime mortgages and the like can be a 
dagger in the heart of efforts to promote economic development 
in American Indian communities. As I have seen in Montana, 
predatory lending all too often traps Indians in a cycle of 
poverty that culminates in the loss of assets through 
bankruptcy and foreclosure. There is no magic bullet to solving 
this problem created by predatory lending. Individual tribes, 
the lending industry, States, the Federal Government, all have 
a role to play. And at every level, financial education is the 
first line of defense and should include basic instruction 
about money management, credit repair, savings and investment.
    This tide is starting to turn. I know the State 
legislatures across this Country are considering bills aimed at 
curbing consumer abuses from sub-prime mortgages, title and 
payday loans and others. I appreciate the State of Montana for 
leading the way on these issues.
    Many lenders are stepping up as well. The good ones have 
adopted best practices and are striving to operate by them. 
Tribes are also working with non-profit organizations and 
industry to educate and protect their members. That good work 
must continue.
    Although the Federal Government does not currently regulate 
non-traditional lenders, that does not mean we don't have a 
role to play. It is critical that the Government maintain its 
trust responsibilities by holding Congressional oversight 
hearings, such as this one, encouraging agencies to conduct 
outreach and financial education, and partnering with 
stakeholders to ensure that we are accomplishing our joint 
goal: the goal of tribal self-sufficiency and prosperity.
    Again, I want to thank the Chairman for holding this 
hearing, and again, I apologize for having to leave and not 
being able to ask some questions, because there are plenty of 
questions to ask. Thank you very much.
    The Chairman. Senator Tester, thank you very much.
    We have six witnesses today, and I would like to tell all 
of the witnesses that your entire statement will be made a part 
of the permanent record. We would like each of you to summarize 
your statements.
    We will begin with Ms. Jerilyn DeCoteau, Director of 
Policy, First Nations Institute in Longmont, Colorado. Thank 
you very much for being here. Why don't you proceed?

   STATEMENT OF JERILYN DECOTEAU, DIRECTOR OF POLICY, FIRST 
                 NATIONS DEVELOPMENT INSTITUTE

    Ms. DeCoteau. I will, thank you.
    Thank you for inviting First Nations Development Institute 
to testify here today on this important issue of predatory 
lending practices and their effects on Indian people and Indian 
Country. First Nations is a 27 year old non-profit that works 
with tribes and Indian organizations across the Country to 
restore Native control of assets and to prevent the stripping 
of assets in Native communities.
    For Indians, as you have noted yourself, predatory lending 
results in the bleeding away of crucial assets. These 
communities already lack the basic economic structures that 
other communities take for granted. They are struggling to meet 
the Federal and tribal goals of economic stability and self-
sufficiency.
    First Nations' study, Borrowing Trouble, takes the first 
close look at the effect of payday loans and refund 
anticipation loans and similar loan products. Our findings show 
that predatory lending is, in fact, a significant problem for 
Native Americans. While our report contains good data, perhaps 
the best way to illustrate the impact on Indians and Indian 
communities is through the personal stories that have been told 
to us.
    I will tell a couple. I am actually from North Dakota, I am 
a member of the Turtle Mountain Chippewa Tribe. So I want to 
share a couple of personal stories, because they involve 
members of my family. For example, the first one I am going to 
tell you about is about a woman who uses refund anticipation 
loans against their tax refunds, known as RALs. She has been 
doing this for eight years. I called her and asked her about 
it, I said, okay, honey, you have to tell me about this. She 
said, well, I have been doing it for eight years, and it costs 
her $150 plus the tax preparation fee to do this. Her refunds 
are averaging about $1,800 to $2,000.
    She said the tax preparer comes to the reservation two days 
a week during tax season and sets up an office there, and 
offers a RAL every time. Because that is what I said, how did 
you know about RALs? I said, did you ask or were you offered? 
She said, well, he offers it every time to everybody. So I 
think maybe he brought it up. She said RALs are really the norm 
in Indian communities, everybody does it, everybody thinks it 
is the way to get your taxes. Lots of times people don't pay 
their bills in December to have more money for Christmas, so 
they owe double in January and February and they take their pay 
stub from their last paycheck of the year and they can get a 
loan off of that as well. They do it as soon as they get their 
W-2s.
    They don't understand, apparently, that if they use an e-
filing, they can get their tax refund probably in less than a 
week. I understand that the IRS is working on getting them back 
even sooner than that.
    Another story that I want to tell you which is not so much 
about payday or RALs, but just about high interest rates in 
general, and that is, well, I should tell you, that woman was 
my daughter. Both of my daughters, I have two daughters who 
live on the reservation, and they both got car loans recently, 
one at 14 percent, one at 18 percent. Both my daughters are 
professional people, they have had long-time jobs. One got 
behind on student loans and doesn't use banking services at 
all, so really has no other credit record except that. The 
other got into some credit card trouble and is paying her way 
out of that and has been very stable for the last couple of 
years. But these two loans that were made just in the last few 
months were the best that they could do.
    And it is really not out of the norm. I have a cousin who 
is a lawyer with the Department of Justice in Michigan. He 
wanted to buy a car for his son on the reservation, and he went 
to the local bank when he was home, the off-reservation banks. 
He went to two of them. He was offered loans of 13 to 18 
percent. When he said, gee, why? He said my credit score is 
very high. I have been employed for 20 years. They told him, 
well, that is just the way it is.
    He said, do you offer a different rate for people off the 
reservation? They said yes. One of the banks explained that the 
reason they do that is that they might be subject to tribal 
court jurisdiction and tribal laws. So he reported that 
incident. And he said, you know, it would be a relatively 
simple thing to set up a study to find out whether or not 
people are being treated differently in those institutions.
    So those are a couple of stories from Turtle Mountain. 
There are a couple more. One woman who earned minimum wage 
borrowed $400, ended up owing $1,400, and the lender took her 
to court. She had talked to the lender about some alternative 
repayment provisions and they didn't work with her. So she 
ended up owing $2,200, including court fees. So the woman I 
spoke to is the woman who bailed her out. This woman also 
bailed out her son, who is 21 years old. He was about $600 in 
debt and panicking and being threatened with court, she helped 
her son out. She thought that young people were being targeted 
because they were less savvy about these things. She said, it 
is not surprising to her that people don't want to share their 
stories, because they are embarrassed. They feel ashamed and 
they don't want to tell people their money problems.
    A couple of others related to home purchase. Of course, 
homes are the basic building block of asset wealth in our 
society. One tribal member purchased a home with a loan from 
his housing authority, but then he took out another loan from a 
lender with high rates. He fell behind and he lost the home. 
Another tribal member, and these are not North Dakota folks, by 
the way, these are from our study, another tribal member who 
owned a home outright, after 30 years of payments, got a home 
improvement loan from an unscrupulous lender and eventually 
lost his home as well.
    Trailer homes present a similar kind of problem. One woman 
got a trailer home with a 29 percent interest rate, even though 
she had good credit and a good job. Then she decided she wanted 
to sell the trailer and buy a house. She wasn't able to do 
that, because what she found was that she was upside down on a 
loan, as they put it. She owed $60,000 on a trailer that was 
worth a little more than $15,000.
    The Chairman. You are saying that she had an interest rate 
of 29 percent on a loan to buy a trailer home?
    Ms. DeCoteau. Yes.
    The Chairman. From what kind of lender?
    Ms. DeCoteau. You know, I don't remember that part. But I 
don't think those rates are uncommon.
    The Chairman. Let me ask you to summarize.
    Ms. DeCoteau. Sure. So those stories are anecdotal, but we 
believe they illustrate the problems created by usurious 
lending in Native American communities. As one Indian man put 
it, when people like me go looking for a loan, our only friends 
are the predatory lenders, and that is because of lack of 
access and so forth.
    RALs are a huge problem in Native communities. The use of 
RALs is disproportionately high. The four counties with the 
highest RAL usage are Native communities in South and North 
Dakota. In Shannon County, South Dakota, part of the Pine Ridge 
Reservation, for example, 52 percent of the taxpayers eligible 
for Federal tax refunds received a RAL in 2004.
    So lending in an already under-capitalized Indian community 
can sabotage the Federal policy of self-sufficiency for tribes; 
and tribes lacking regulatory control and enforcement authority 
over these off-reservation institutions are left with few 
options for safeguarding the economic security of their 
members.
    I would point out, you already mentioned, the United States 
Department of Justice has called loans with over 36 percent APR 
predatory when they are made to military personnel. It is not 
different with Indians. It applies equally. There is a Federal 
interest in protecting military personnel, but there is also a 
Federal interest in protecting Indian people and their assets 
and communities. Federal assistance in finding solutions is 
badly needed.
    I won't go into all of our recommendations at this time, 
because I wanted to highlight the stories. I would be happy to 
do that later if the Committee wants to hear some of those 
stories.
    Let me just finish this way. This is the first time Native 
Americans have been given a voice on how predatory lending 
affects them and their communities, and to show what works to 
prevent unfair lending practices. This is the first time anyone 
has collected data to tell their side of the story, and the 
first time that anyone has asked to hear those stories.
    On behalf of First Nations, thank you for allowing us to 
share what we have learned. Thank you.
    [The prepared statement of Ms. DeCoteau follows:]

   Prepared Statement of Jerilyn Decoteau, Director of Policy, First 
                     Nations Development Institute
    Chairman Dorgan, thank you for inviting First Nations Development 
Institute to testify here today on a matter of great importance for 
Indian Country and for the nation as a whole--that of lenders who prey 
on vulnerable borrowers, resulting in loss of individual assets and 
economic security. For Indians, predatory lending results in the 
bleeding away of crucial assets from Native American communities. These 
communities already lack the basic economic structures that other 
communities take for granted and are struggling to meet the federal and 
tribal goal of economic stability and self-sufficiency.
    First Nations Development Institute (FNDI) is a 27-year-old 
nonprofit headquartered in Longmont, Colorado with offices in 
Fredericksburg, Virginia, whose work is with tribes and Native 
communities across Indian Country.
    FNDI's mission is to restore Native American control and 
culturally-compatible stewardship of the assets they own--be they land, 
human potential, cultural heritage, or natural resources--and to 
establish new assets to ensure the long-term vitality of Native 
communities. FNDI does its work using a three-pronged strategy of 
educating grassroots practitioners, advocating systematic change, and 
capitalizing Indian communities.
    FNDI's core belief is that ``when armed with appropriate resources, 
Native Americans have the capacity and ingenuity to ensure the 
sustainable economic, spiritual, and cultural well being of their 
communities.''
    Directly relevant to the topic of this hearing is FNDI's recent 
report, Borrowing Trouble: Predatory Lending in Native American 
Communities. The report is the outcome of a research study conducted by 
FNDI under a grant from the Annie E. Casey Foundation. Our report 
provides an analysis of survey data collected from attendees at the 
National American Indian Housing Council meeting in May 2007; survey 
data collected from Native users of selected Voluntary Income Tax 
Assistance sites; geo-coded data of payday lenders, bank branches, and 
Native community development finance institutions; and a national data 
set of home mortgage loans. The report also presents five case studies 
of promising practices and concludes by offering concrete suggestions 
about the steps Native nations can take to curb the impact of predatory 
lending on their citizens.
    The purpose of the study was to produce original research on the 
extent of the problem of predatory lending in Native American 
communities and to document local solutions currently being practiced 
by tribal housing authorities and tribal governments. A predatory loan 
is commonly understood to be an unsuitable loan designed to exploit 
vulnerable and unsophisticated borrowers. Predatory loans may have 
inappropriately high interest rates or fees or terms and conditions 
that trap borrowers; often, these conditions are not well explained to 
borrowers. When borrowers fall prey to these practices, they often 
cannot afford to repay the loans, and end up in foreclosure, 
bankruptcy, or other financial hardships. We wanted to understand the 
effects of predatory lending on Native communities and collect data on 
payday loans, pawnshop transactions stores, car title loans, Refund 
Anticipation Loans, and mortgage loans with high interest rates and 
hidden fees.
    Predatory lending is a nationwide problem, but for Indian tribes 
the bleeding of assets away from Native communities has consequences of 
a greater dimension. The very survival of tribes is linked to securing 
comprehensive strategies for economic improvement. Many Indian people 
are poor, and when even paychecks are taken from them, the dream of 
homeownership and building stronger communities is beyond hope.
    We are pleased to share with you some of what we have learned about 
lending industry practices and the special problems they presents to 
members of Native communities. We are also pleased to share our policy 
recommendations, based largely on best practices in the case studies 
conducted on five Native programs. These best practices provide 
alternatives to predatory loans, help build individual assets, and in 
turn help tribal communities develop stronger, more secure economies.
    Our written statement expands on our oral testimony addressing the 
issues of concern to the Committee:

        I. Identifying the problem: We will discuss the findings of our 
        study and provide examples of predatory lending through 
        personal stories told to us.

        II. Addressing the problem: We will describe tribal practices 
        and programs that are having good results in combating the 
        effects of predatory lending.

        III. Policy recommendations: We will recommend policies and 
        programs that will promote asset building and curb predatory 
        lending practices that affect Native American communities.

I. Identifying the Problem: Predatory Lenders Make it Difficult for 
        Individuals to Build Assets, to Become Mortgage Ready, and to 
        Move Out of the Cycle of Debt.
    History is replete with examples of predatory practices involving 
Indian assets, from theft of land to gross underpayment for the lease 
or sale of natural resources. Now predators are reaching directly into 
Indians' pockets for their paychecks and tax refunds. This is in large 
part because vulnerable Indians have no other assets to steal.
Payday Lenders
    Many Indians who use payday lenders lack access to mainstream 
banking services, either because there are no such institutions nearby, 
or because borrowers lack collateral (for example, no home equity), 
have poor credit, or no credit history. To get over a financial crisis, 
such as a car repair, medical bills, a missed mortgage payment, or a 
heating bill in winter, many people have no alternative but to turn to 
lenders who can dictate the terms. This fairly describes the situation 
for too many in Indian communities, where wages are typically low. For 
example, the median household income for American Indians and Alaskan 
Natives is $33,132; the poverty rate is 23 percent. By comparison, the 
median income for whites is $46,971 and the overall poverty rate is 
12.7 percent. Recent research by the Harvard Project on American Indian 
Economic Development suggests that this contrast is even more stark for 
reservation residents--in 2000, the per capita income for residents of 
Indian reservations was $7,942 as compared to $21,587 for the total 
United States.
    The number of payday lenders has exploded in the last 20 years. In 
the early 1990s there were around 300 payday lending outlets in the 
United States; recently the count was higher than 22,000. For 
comparison purposes, there are 13,300 McDonald's restaurants and 7,087 
company-operated Starbucks according to those chains' web sites. In New 
Mexico, a state that has relatively lax regulation of payday lenders, 
there are 4 payday lenders for every McDonald's.
    The increase has been due to a number of factors, including 
deregulation of the lending industry in the 1980s and 1990s. Protective 
measures such as ``truth in lending'' have not been effective in 
curbing abusive lending practices. Data from the industry itself 
suggests that the average payday loan borrower is low-income and 
minority: a borrower is more likely to be Latino or African American, a 
renter, and have a median income lower than the U.S. average.
    The Center for Responsible Lending reported in 2006 that most 
payday loans cost $15-$30 per $100 for a two week term, resulting in 
effective annual rates of 390 to 780 percent interest. The typical 
payday borrower rolls his loan over several times and eventually pays 
back $793 for an initial $325 loan. Ninety percent of the revenue 
generated in the payday-lending industry comes from borrowers who are 
trapped in a cycle of payday loan debt, or those who take five or more 
loans a year. Fees play a key role--the Center for Responsible lending 
estimated that the industry brings in $4.6 billion in fees per year. 
The total impact on the poor and effect on the economy has been 
quantified at more than $8 billion a year.
    In their editorial ``Beyond Payday Loans'' in the Wall Street 
Journal (Jan. 24, 2008), President Clinton and California Governor 
Arnold Schwarzenegger said, ``Imagine the economic and social benefits 
of putting more than $8 billion in the hands of low- and middle-income 
Americans. That is the amount millions of people now spend each year at 
check-chasing outlets, payday lenders and pawnshops on basic financial 
services that most Americans receive for free--or very little cost--at 
their local bank or credit union.'' According to the Report of the 
Native American Lending Study, most Native communities do not have 
access to local banks and very few have access to credit unions. This 
makes them easy prey.
    According to 101 survey respondents at the April 2008 National 
Indian Gaming Association Trade Show and Convention, predatory lending 
is a significant concern across Indian Country: 73 percent indicated 
that they ``Strongly Agree'' or ``Agree'' with the statement that 
predatory lending is a problem in their community (38 percent of 
respondents were elected tribal officials). This corroborates the 
results from 140 respondents to a survey at the annual National 
American Indian Housing Council (NAIHC) meeting held in May 2007. 
Seventy-three percent of the respondents to that survey also reported 
that predatory lending was either ``a big problem'' or ``somewhat of a 
problem'' in their communities.
    Respondents to the NAIHC survey represented over 67 tribes in 28 
states. Their insights are valuable because tribal housing 
professionals are uniquely placed to observe and understand the impact 
of predatory lending practices in their communities. They assess 
clients' eligibility for housing assistance, provide advice about 
mortgage access, and often offer financial education and credit repair 
services; their perceptions of predation are based on these 
interactions.
    When asked about specific predatory practices, 67 percent of 
respondents to the NAIHC survey identified payday loans as either 
``somewhat of a problem'' or ``a big problem.'' Thirty-three percent of 
respondents stated these loans are a problem because a lot of people 
have them, and 63 percent stated that the interest rates on these loans 
are too high. Sixty-two percent responded that they feel that payday 
loans prey on vulnerable people. Significantly--and perhaps to be 
expected--the most common reasons respondents cited for clients falling 
prey to predatory lenders and products included a generic need to get 
access to cash and the more specific need for money to pay bills.
    Drawing upon geo-coded data of payday lenders (provided by Dr. 
Stephen Graves at the California State University--Northridge who has 
identified a pattern of predatory lending in relation to military 
bases) we produced several maps of the location of payday lenders in 
relation to several Indian reservations (see maps of South Dakota and 
Gallup, New Mexico at the end of this testimony). The maps drive home 
the point that American Indians living on or near tribal lands have 
nearly as many payday lending choices (red dots) as bank branch choices 
(green dots). Our map of the Gallup, New Mexico area demonstrates that 
citizens in that community, 75 percent of whom are Native American, 
have nearly twice as many payday lenders than banks to do business 
with.
    South Dakota provides an interesting example. On November 26, 2007, 
The Rapid City Journal observed, ``Rapid City, with its proximity to 
Ellsworth AFB [Air Force Base] and its growing Native American 
population, is particularly vulnerable to the payday industry. 
Pennington County has just 12 percent of the state's population, but it 
contains almost one quarter of its payday lending operations.'' As many 
as one in five members of the armed forces took out a payday loan in 
2005, a Pentagon report said last year, contributing to rising debt 
levels that interfere with troop deployment and service members' 
security clearances. South Dakota eliminated usury laws in 1980 as a 
means of attracting financial services businesses. As compared to other 
states, it now has the highest number of banks per capita and the 
second highest number of payday lenders.
    Given the strong service orientation of payday lenders and their 
allied businesses as compared to that of banks, and given many 
reservation residents' limited experience with banks, ready access to 
payday lenders has translated to predation and escalating debt for 
numerous Native consumers. One participant in a breakout session on 
asset building at the National Congress of American Indians 2007 
midyear conference in Anchorage, Alaska put this access and experience 
linkage succinctly: ``When people like me go and look for a loan, our 
only friends are the predatory lenders.''
Refund Anticipation Loans (RALs)
    Loans against tax refunds are another common form of lending that 
is receiving increasing scrutiny. These loans are appropriately termed 
refund anticipation loans, or RALs, but they are perhaps best (but 
inaccurately) known as ``rapid refunds.'' Those taking out RALs pay 
large fees to receive an immediate payment by taking a loan against 
their tax refund--in many cases receiving their money only a few weeks 
earlier than they would have otherwise. This can result in an effective 
annualized interest rate of anywhere from 70-700 percent, depending on 
the size of the tax refund. Research has shown that RALs are heavily 
marketed among low-income populations, especially those that qualify 
for the Earned Income Tax Credit (EITC). Our research suggests that 
many people in Native communities are not aware that they could have 
their taxes prepared free of charge, or that they could access the EITC 
without paying for tax preparation.
    Sixty-eight percent of respondents to the survey administered at 
the National American Indian Housing Council (NAIHC) meeting identified 
loans against tax refunds as ``somewhat of a problem'' or ``a big 
problem.'' Forty-three percent of respondents stated that these loans 
are a problem because a lot of people have them, and 53 percent believe 
that the interest rate is too high. Fifty-five percent of respondents 
stated that they believe these loans are a problem because they prey on 
vulnerable people.
    Data is available at the county level regarding the usage of Refund 
Anticipation Loans. An analysis of the top ten states with the largest 
American Indian/Alaska Native population indicates that among the 
counties with 50 percent or more American Indian/Alaska Native 
population (usually indicating a reservation), usage of Refund 
Anticipation Loans was nearly 4 four times more likely than among non-
Native majority counties. Over 28,000 people in these Native-majority 
counties used a RAL in 2005, amounting to a total cost of approximately 
$6,888,000 paid for the RAL service.
    In early 2007, the Gannett News Service analyzed data from the IRS 
(originally obtained by the National Consumer Law Center) and ranked 
the counties in which the take up of these loans was the greatest. The 
top four counties on the list are ``Native counties'' in South Dakota 
and North Dakota--counties where land is largely reservation land and 
at least 80 percent of the population identifies as Native.
    In Shannon County, SD, part of the Pine Ridge Reservation, 62 
percent of taxpayers eligible for federal tax refunds received a refund 
anticipation loan for the 2004 tax year. In Todd County, SD (where the 
Rosebud Reservation is located), Buffalo County, SD (where the Crow 
Creek Indian Reservation is located), and Sioux County, ND (where the 
Standing Rock Reservation is located), the percentages were 56 percent, 
51 percent, and 49 percent respectively.
    The cost of this activity is substantial. Looking at the 2005 tax 
year (taxes filed in 2006), the National Consumer Law Center estimated 
the annualized interest rate for a loan covering the average refund 
(about $2,150) at 178 percent--or a $100 cost in addition to the fee 
for tax preparation (which averaged $146).
    The Kathryn M. Buder Center for American Indian Studies and the 
Center for Social Development at Washington University in St. Louis 
calculated comparable costs for the 2005 tax year among Native clients 
of Volunteer Income Tax Assistance (VITA) sites. Some 600 of the 2,300 
Native clients who were surveyed during the 2007 tax season reported 
using a paid tax preparer in the previous tax year. Over half of those 
filers accepted a RAL. On average, those accepting a RAL paid $189 for 
tax preparation services, as compared to $121 for those who did not.
    Volunteer Income Tax Assistance (VITA) sites in Native communities 
have been effective in reducing the use of paid tax preparers who often 
charge fees and offer clients Refund Anticipation Loans. The Menominee 
housing authority initiated a VITA site for the Menominee reservation 
when they found out that Menominee County, whose boundaries are the 
same as the reservation, had the highest usage of Refund Anticipation 
Loans in the state in 2002 (the top four cities were also on Wisconsin 
Indian reservations). The VITA site on the Menominee reservation 
processed over $560,000 of federal refunds in 2007, an increase of 23 
percent from the previous year. A total of 439 returns were processed 
free of charge, potentially saving over $120,725 in preparer fees for 
the community that year.
Evidence of Other Predatory Lending Practices
    In our research report Borrowing Trouble: Predatory Lending in 
Native American Communities we identified several other predatory 
lending practices that are affecting Native communities. Fifty percent 
of respondents to the survey administered at the National American 
Indian Housing Council (NAIHC) meeting identified car title loans as 
``somewhat of a problem'' or ``a big problem.'' Fifty-four percent 
identified mortgage loans as a ``somewhat of a problem'' or ``a big 
problem,'' and fifty-eight percent identified pawn shop transactions as 
``somewhat of a problem'' or ``a big problem.''
    Due to the presence of trust land on Indian reservations and the 
difficulty in getting private mortgages, abusive mortgage lending may 
be less of a problem on Indian reservations than in urban areas. 
However, data in our research report demonstrates that nationwide, 
between 2002 and 2005, American Indians borrowed from lenders engaged 
in the subprime mortgage market at a rate disproportionate to that of 
non-Indians. Comparing the percentages of loans made by high-cost 
lenders to American Indians and Whites, we found that Natives were 
engaged with the high-cost market more than twice as often as Whites 
(disparity ratios in the range 2.06:1 to 2.32:1). This suggests that 
nationwide, Native borrowers remain more at risk of the negative 
outcomes associated with subprime lending than non-Natives.
The Cost of Predatory Lending in Native Communities
    The report Borrowing Trouble: Predatory Lending in Native American 
Communities provides case study data on the impact of abusive lending 
practices on Native communities (and therefore Native economies). Our 
case study research included interviews with several key informants who 
work in economic development organizations and coordinate asset-
building programs. In all five of our case study sites, economic 
development practitioners identified predatory lending as a problem 
that strips economic resources from economically stressed families. One 
practitioner put it this way:

        First and foremost it affects the financial security of the 
        family. Many of our families are just one minor emergency away 
        from extreme financial hardship. This in turn affects family 
        relations--stress, divorce, bankruptcy, child welfare. The 
        extreme cost of predatory lending dramatically decreases living 
        standards (eventually, if not immediately). The aggressive 
        nature of predatory lenders encourages poor financial 
        management practices, which make this a perpetuating cycle. 
        Many of our clients come to us in extreme emergencies regarding 
        foreclosure, utility cutoff, or repossession because nine out 
        of ten times they have been making their predatory loan 
        payments and foregoing essential payments--the predatory 
        lenders are such aggressive collectors (and many times not 
        ethical or legal) that families forgo making shelter, utility, 
        and transportation payments just to satisfy the predatory 
        lender. High fees lower the standard of living and drain money 
        from the general economy, particularly with non-local predatory 
        lenders. The financial stress involved for families borrowing 
        from predatory lenders also negatively affects workplace 
        productivity, which drains resources from the local economy.

    Many of the economic development practitioners we interviewed work 
on repairing their clients' credit so that they may qualify for asset-
building programs such as those focusing on small business development 
or homeownership. Nearly every practitioner we interviewed identified 
the need to repair credit or extract people from predatory loans as one 
of their highest priorities.
    Several examples of the devastating outcome of predatory lending 
emerged from the study and our follow-up research:

   A middle aged man took out a payday loan to pay his electric 
        bill. The high interest rate and hidden fees, the cost of which 
        became a cyclical drain on his paychecks, eventually took his 
        whole regular paycheck plus $200 to pay.

   A tribal member purchased a home with a loan from his 
        housing authority but then took another loan from a predatory 
        lender, with a high interest rate. The family fell behind on 
        payments and lost their home.

   A tribal member who owned his home outright after 30 years 
        of payments got a home improvement loan from an unscrupulous 
        lender and eventually lost his home.

   A community practitioner on a reservation in Arizona stated 
        that she has seen a lot of problems with trailer loans. She 
        provided an example of one case in which an individual was 
        given a loan on a trailer but it was not explained that a 
        trailer is a depreciating asset. The loan had a 29 percent APR 
        even though the borrower had good credit and a decent income. 
        The trailer owner wanted to sell the trailer and buy a home, 
        but was so far in debt (also called being ``upside down on a 
        loan'') that she was not able to sell the trailer. The trailer 
        owner owed $60,000 on a trailer that was worth about $15,000.

   A woman earning minimum wage borrowed $400 and ended up 
        owing $1,400. The lender took her to court. She ended up owing 
        $2,200 including court fees. The lender would not work with her 
        on a repayment plan that she could afford.

   A 21 year old on a North Dakota reservation wrote two 
        letters and went in person four or five times to a payday 
        lender to try to work something out. When he was $600 in debt, 
        the lender threatened to take him to court. His mother bailed 
        him out. She said payday loans are common and she believes 
        youth are targeted. She said she is not surprised that 
        individual stories are hard to get because people are ashamed 
        and will not talk about the trouble they are in.

   A couple on a North Dakota Reservation used RALs every year 
        from 2000-2007. They paid $150 plus tax preparation fees of $70 
        on refunds of $1,800-$2,400. The tax preparer comes to the 
        reservation 2 days a week during tax season. He offers people a 
        RAL every time. The couple said RALs ``are the norm, especially 
        if you get a return of around $4,000-5,000. You don't see it 
        [the interest] and you don't feel it. People get RALs as soon 
        as they get their W-2s. You can even take your last pay stub of 
        the year and get a loan. After Christmas, people need the 
        money--sometimes they skip a bill in December and they have a 
        double payment in January.''

   This same woman, when asked about payday loans, said yes 
        people use them, but first you have to have a job and the 
        unemployment rate here is 73 percent according to BIA 
        statistics. The woman is the employment outreach coordinator at 
        the tribal college.

   On the same North Dakota reservation, two women obtained car 
        loans for 14 percent and 18 percent, respectively. Both have 
        longtime professional jobs. One fell behind in student loan 
        payments, but is nearly caught up. She does not keep a checking 
        account or use a credit card, so besides the student loan, has 
        no credit. The other fell behind on credit card payments and is 
        paying off current debt, but no longer uses credit cards.

   A lawyer employed by the United States Department of 
        Justice, with a credit rating of 780, wanted to help his son 
        buy a car. Two banks just off a North Dakota reservation 
        offered him 13 percent-18 percent rates. One bank explained 
        that rates were higher for reservation borrowers because the 
        lender might be subject to tribal laws and tribal court 
        jurisdiction. The lawyer went home to Michigan and obtained a 
        loan for 6\1/2\ percent. He reported the problem to the Civil 
        Rights Division. He noted that a simple investigation using 
        undercover borrowers would quickly document this type of 
        discrimination.

    While these stories are anecdotal, we believe that they illustrate 
the problems created by predatory lending in Native communities. Loans 
that charge high interest rates or fees are often made to people who do 
not understand the terms of the loans, are not qualified to receive 
them, and are not able to pay them back. The most notable outcome of 
these predatory loans is asset stripping, or the draining of economic 
resources away from Native families and communities. Given that many 
Native families and communities are already experiencing economic 
hardship, the outcome of predatory lending is especially problematic 
for them.
II. Addressing the Problem: Providing Financial Education, Alternatives 
        to Predatory Lending Products, and Consumer Protections
    The report Borrowing Trouble: Predatory Lending in Native American 
Communities presents case studies of five tribal programs whose 
innovations with financial education, alternative financial services 
and products, and other asset-building programs and strategies are 
helping to eliminate reliance on predatory lending, repair credit and 
build economic security.
    In these five communities, economic development practitioners are 
developing innovative strategies to combat predatory lending. These 
strategies include providing financial counseling, credit repair, and 
financial education to encourage people to avoid using predatory 
lenders, and using community development financial institutions (CDFIs) 
to provide alternative credit products to borrowers. Additional 
research in the report demonstrates that tribes can also set interest 
rate caps that may reduce the incidence of predatory lending on 
reservations.
    Our recommendations, based on the findings in our study, are that 
tribes and tribal organizations should:

        1. Develop credit programs and borrowing opportunities that 
        reduce the demand for predatory loans.

        2. Develop consumer education programs that assist in financial 
        planning, savings and credit repair.

        3. Set interest rate caps.

    Deserving special emphasis are Community Development Financial 
Institutions.
    Native CDFIs meet a market demand met by few others in the local 
community. They can provide affordable access to credit for borrowers 
with poor or no credit while at the same time providing financial 
education and helping the borrowers build assets. David Fleming, former 
director of the Lac Courte Oreilles Federal Credit Union (LCOFCU) 
provides an example of this approach:

        Our goal is not to make a lot of money, but to establish a 
        healthy relationship with that borrower. Instead of going to 
        pawn shop or payday lender, they come to us. We want to build 
        relationships with borrowers. The goal of the credit union is 
        to provide an alternative, getting people to come in the door. 
        We hope they are learning to trust banks. Many have never been 
        in a bank before.

    Staff at LCOFCU work closely with borrowers when necessary. David 
Fleming stated,

        When someone lost their job at the tribe, or couldn't pay their 
        loan, we wanted them to be comfortable coming to talk with us. 
        We would work with them to refinance, or lower the payments on 
        the loan until they got back on their feet. This made a 
        difference and helped people learn to trust us.

    Another lesson learned is that the ``low stakes'' loans are 
important stepping stones to becoming credit worthy. Smaller consumer 
loans, including one called the ``Easy Money'' loan, allows people to 
learn to use credit responsibly. Payroll deduction was used to ensure 
that people had a low default rate. David Fleming stated,

        Many people told us that the ``Easy Money'' loan made them 
        credit worthy--gave them a credit history, or helped improve 
        their credit score. We reported payment on those loans to the 
        credit agency and it helped people establish or repair credit. 
        People told us that it made them eligible for a home loan later 
        on.

    FNDI supports the 2008 policy recommendations made by the Native 
Financial Education Coalition, which were based in part on FNDI's 
research. We agree that there is a need to expand financial education 
opportunities, combat predatory lending, improve institutional 
infrastructure, increase access to EITC, and promote and expand IDA 
utilization.
III. Policy Recommendations
    Our report Borrowing Trouble: Predatory Lending in Native American 
Communities focuses on what tribes can do to combat predatory lending, 
but there is also an important role for the federal government, as 
trustee with responsibility for implementing and overseeing the federal 
policy of tribal self-determination and protection of tribe 
sovereignty. Our first three recommendations focus on actions tribal 
governments may take, and our final recommendation provides suggestions 
for a federal role.
1. Recommendation One: Tribes Should Develop Credit Programs and 
        Borrowing Opportunities That Reduce the Demand for Predatory 
        Lending and Stem The Bleeding of Assets from Indian Communities
    Tribes have the ability to develop their own financial 
institutions, and these financial institutions can offer alternative 
credit products to the citizens of Native nations. There are currently 
over 84 Native-owned banks, credit unions, and loan funds that are 
actively providing financial products and services to Native people, 
many of which have received support from the CDFI Fund as part of their 
Native American programming. As detailed in our report Borrowing 
Trouble: Predatory Lending in Native American Communities, several of 
these financial institutions currently offer short term consumer loans, 
which reduce the demand for high fee payday loans. Many of these 
financial institutions also provide financial education and credit 
repair in a variety of forms.
2. Recommendation Two: Native Nations Should Develop Consumer Education 
        Programs that Assist in Financial Planning and Credit Repair
    Consumers resort to payday, car title, pawn shop, and usurious 
consumer finance loans not only because they lack alternatives but 
because they lack experience in borrowing and investing. This is 
especially true in Native communities that are underserved by 
mainstream banking institutions. By providing financial education--from 
basic education on spending and saving to more complex education on 
credit repair and investment--Native nations arm their citizens against 
the practices of predatory lenders. Financial education can help tribal 
citizens avoid predatory loans in the first place and help those 
already in usurious situations extract themselves.
    While our research shows that some financial education is already 
being provided in many Native communities through housing authorities, 
Native CDFIs, schools, and tribal colleges, research in other settings 
(among military service members) indicates that those most in need may 
be least likely to seek financial education--at least until there is no 
other alternative. These facts suggest that to be effective against 
predatory lending, financial education and remediation activities 
should be coupled with credit repair and preventive loan products, such 
as those described in the five case studies in our report.
    The bottom line is that financial education is critical, but 
unlikely to be effective by itself, if there are no alternative lending 
services available.
3. Recommendation Three: Tribes Should Set Interest Rate Caps
    Tribes should set caps on the interest rates offered by lenders 
under their jurisdiction, as a few tribes have done already, notably 
the Navajo Nation (21 percent APR); the Blackfeet Tribe (21 percent 
APR); and the Grand Traverse Band of Chippewa and Ottawa Indians 
(Homeownership Protection From Predatory Lending Ordinance).
    This recommendation echoes the best policy advice from outside 
Indian Country. States such as New York and North Carolina have set 
effective interest rate caps and have made significant inroads against 
payday lending. Similarly, in late 2007, the U.S. Department of Defense 
issued regulations to implement the consumer protection provisions of 
Public Law 109-364 (The John Warner National Defense Authorization 
Act). These regulations set a 36 percent APR cap for loans to military 
borrowers. On January 7, 2008, the Department of the Treasury proposed 
a rule to limit the ability of tax return preparers to market RALs.
4. Recommendation Four: Effective Federal Policy Actions
    The Federal Government, as trustee with responsibility for 
implementing and overseeing the federal policy of tribal self-
determination and protection of tribe sovereignty, can act to limit 
predatory lending in Native communities. We recommend that the Federal 
Government: (a) assist in determining the economic and social impact of 
predatory lending practices on Indians and Native communities, (b) 
provide funding in support of increased financial education and 
alternative loan products; (c) develop a strategy to address the 
impacts of predatory lending and the flow of assets off of Indian 
reservations.
(a) Collect Data on Predatory Lending in Native Communities
    The Federal Government should commission a detailed study of 
lending practices in Native communities, including all usurious and 
discriminatory practices, such as charging higher interest rates than 
are charged to off-reservation borrowers and refusal to make loans to 
people and businesses on reservations.
    It is worth noting that discrimination in lending gave impetus to 
the founding of Turtle Mountain State Bank, which opened in December, 
2007 on the Turtle Mountain Chippewa Reservation. One of the bank's 
owners, tribe member Ken Davis, stated in News From Indian Country that 
tribe members often had difficulty getting loans from banks off the 
reservation. ``The other banks all the way around us don't necessarily 
want to lend money over here,'' he said. ``If a new home is built, or 
new business does start, they want it to be built or started in their 
town.''
(b) Continue to Provide Funding in Support of Increased Financial 
        Education and Alternative Loan Products
    The Federal Government currently supports several programs that 
help increase financial education, provide alternative financial 
products, and educate consumers. The CDFI Fund of the U.S. Department 
of the Treasury has several programs that help Native nations establish 
community development financial institutions (CDFIs) for their citizens 
which provide financial education and alternative financial products. 
The funding for the Native Initiatives program and the Expanding Native 
Opportunities program of the CDFI Fund, and the other Native specific 
programs within the CDFI Fund, should be continued. The Social and 
Economic Development Strategies (SEDS) program of the Administration 
for Native Americans provides funding for community groups to provide 
financial literacy training and educate consumers. Finally, consumer 
education regarding Volunteer Income Tax Assistance sites has been 
effective in keeping money in Native communities and reducing the use 
of paid tax preparers who charge high fees and offer refund 
anticipation loans.
(c) Develop a Strategy to Address the Impacts of Predatory Lending and 
        the Flow of Assets Off of Indian Reservations
    Federal assistance is needed to develop a strategy that will 
address legislation to regulate discriminatory lending practices, 
provide for tribal court jurisdiction where possible, and help tribes 
develop needed consumer protection codes and enforcement capabilities.
Conclusion
    Predatory lending takes many forms, including payday loans, refund 
anticipation loans, and mortgage lending with high rates or fees. The 
cost of offering loans with high rates or fees is significant, 
especially to those who are not qualified to pay them back. Predatory 
lending can trap people in a cycle of debt, ruin credit, and cause 
stress that leads to divorce, bankruptcy, loss of self esteem, and 
hopelessness. For Native Americans the impact is even more devastating 
because it keeps the flow of money going away from the reservation, 
destroying the potential for asset building that is desperately needed 
to bring economic security to Indian families and their communities. 
Predatory lending in an already under-capitalized tribal community can 
sabotage the federal policy of self sufficiency for tribes. And tribes, 
lacking regulatory control or enforcement authority over these off-
reservation lending institutions, are left with few options for 
safeguarding the economic security of their members. Federal assistance 
in finding solutions is badly needed.
    Thank you for inviting FNDI to offer what we have learned from our 
study of predatory lending in Indian country and best practices to 
combat abusive lending and prevent the bleeding of assets from Indian 
communities. We appreciate the opportunity to talk with you about the 
challenge these practices present for vulnerable borrowers in Native 
communities and for tribes themselves in reaching the goal of economic 
self-sufficiency.





    The Chairman. Ms. DeCoteau, thank you very much for your 
testimony. We appreciate your being here.
    Next we will hear from the Honorable Ron Allen, Secretary 
of the National Congress of American Indians; also Chairman of 
the Jamestown S'Klallam Tribe in the State of Washington. Mr. 
Allen, Chairman Allen, thank you very much for being here, and 
you may proceed.

STATEMENT OF HON. W. RON ALLEN, SECRETARY, NATIONAL CONGRESS OF 
     AMERICAN INDIANS; CHAIRMAN, JAMESTOWN S'KLALLAM TRIBE

    Mr. Allen. Thank you, Mr. Chairman. It is always an honor 
to come before you and this Committee to testify on many issues 
that affect our tribal government and our communities.
    I appreciate your accepting our testimony for the record. 
We have submitted to you some oral testimony, and I hope that 
it is okay that we can add some additional comments that will 
provide some recommendations that we would suggest to the 
Committee to address this issue that we are all concerned 
about.
    Predatory lending, of course, is a nationwide concern. It 
is not just Indian Country; it is all over the Nation. We are 
here to talk about how it affects our Indian communities. 
Generally, and I am sure others will share some of their 
experiences with regard to the problem that we have in Indian 
Country, this is really a symptom of the fact that for 
mainstream Indian Country, we really are impoverished and are 
struggling just to have a median kind of income and any kind of 
stable lifestyle, because of our weak economies and our low 
employment opportunities on our reservations.
    I want to share a quick little story to add to Jerilyn's 
examples. I know of an individual in eastern Washington who 
borrowed a pay loan, which is often the issue, the short-term 
pay loans that many of our tribal members will borrow, to take 
care of domestic expenses or other emergency kinds of expenses, 
pay for fuel, a car payment or whatever. Consequently, they 
fall into a spiral worsening situation. She did too. She ended 
up in a spiral where she couldn't pay her rent; she didn't meet 
the leasing obligations of her housing program on the 
reservation; she was given notice and one thing led to another. 
Eventually, she was summoned before the tribal court, she was 
behind in her fiscal commitment. This is a woman who lives on a 
fixed income.
    Because she couldn't keep making these payments and missed 
loan payments, she ended up getting so far behind that she 
couldn't pay the rent. They eventually evicted her.
    That just creates a new kind of problem for the tribe, if 
our housing program evicts somebody because they can't make the 
payments, because they are trying to deal with the day to day 
expenses. Now we have to deal with them because they are out on 
the street, homeless. So what do we do with them, and where do 
we put them? It is a problem that we are experiencing. It is 
criss-crossing all of Indian Country. It is the same for large 
tribes and small tribes. It doesn't matter the size of the 
tribe, we all have that problem in similar situations.
    So we are here to talk about some solutions and a course of 
action to try to find some solutions in this matter. This 
problem is definitely persistent. The banking industry is very 
weak on the reservation, as you well know, at all levels. It 
wouldn't matter whether an individual is going for a home or 
car loan, or whether individuals or tribes are looking for 
loans for business, et cetera. The industry is just weak in 
terms of how it provides assistance for Indian Country. We 
really think this needs to be seriously looked at.
    I think underlying this problem is the fact that for the 
most part, tribal citizens like mainstream America really lack 
the education and understanding on how to manage their finances 
responsibly, if they are going to go look for a short-term 
loan, what are they looking for? What should they be examining 
in terms of what they are signing and what kind of commitment 
they are making and is it working for them?
    I would point out that these short-term kinds of loans are 
needed. We simply need some sort of controls around them, we 
need some sort of responsibility with regard to the industry 
practices. But they are needed. We have a lot of Indian people 
out there who just basically operate check to check and 
emergencies happen. They are needing resources to deal with 
just the day to day operations that come up for them and they 
need some sort of recourse. So we don't want to create 
regulations that would chase those institutions away. What we 
do need is institutions or regulations and/or laws, if 
necessary, that would provide order and control to protect the 
interests of the tribe and our citizens.
    That is our interest from the tribal government 
perspective. We want to protect our citizens. We don't want 
them to get into a spiral to make their personal financial 
situation worse. We definitely need that kind of a financial 
environment. We want them to be able to become better fiscal 
managers so that they can build up their assets, so that they 
can build up their equity, build up their wealth and become 
more stable personally or as a family financially. So we are 
very concerned about the situations where there may be entities 
out there who are predators and they go after our citizens and 
basically put them in a very precarious situation which causes 
us as tribal governments a serious problem.
    We have three areas we want to quickly talk about and one 
of them is financial choice. Because we are unbanked 
communities, what are our options? You have the community 
development financial institutions that are getting out there. 
Well, what more can be done? How can we strengthen those 
opportunities, how can we strengthen the institutions who do 
provide those kinds of services throughout Indian Country? Are 
they actually predatory or not? We don't know. There is a need 
to investigate this situation. We would certainly offer our 
services to be a part of that solution in working with the 
Congress, the Federal Government, and the institutions with 
regard to finding those kinds of solutions. What is the 
problem? How bad is it?
    With the law that was applied around the military 
institutions, what happened? What is the result of that new 
law? Did that cause a problem, cause a new problem? We don't 
want to go down a road that is not being successful. We want to 
make sure that our tribal members have an opportunity for this 
kind of an interest i.e., the availability of short term loans.
    Second issue is the education, the fiscal literacy. We need 
programs. I know there are programs out there. How good are 
they? How well are they reaching out to our community? How well 
are they collaborating with the tribal governments in terms of 
managing those kinds of affairs? There is a need to ratchet 
that relationship up.
    The last item is jurisdiction. This is an area where, as we 
move forward, we want the financial institutions to come onto 
our reservations or around our communities. But we need some 
sort of controls over that industry.
    So as we explore these issues, it really becomes an issue 
of, should there be some additional legislation that provides 
clarity about the tribes' authority over these institution, 
whether they are banking or non-banking lenders on the 
reservation.
    So I will conclude with that, Mr. Chair, and say that we 
are here to find solutions. We are here to help our citizens. 
We want them to become more stable. There is a prevalent 
problem, as Jerilyn had described, and we want to work with you 
to help make that happen. NCAI is at your beck and call. Thank 
you, Mr Chair.
    [The prepared statement of Mr. Allen follows:]

 Prepared Statement of Hon. W. Ron Allen, Secretary, National Congress 
        of American Indians; Chairman, Jamestown S'Klallam Tribe
    Good morning Chairman Dorgan and members of the Committee. I am 
honored to be here today on behalf of the National Congress of American 
Indians, the nation's oldest and largest national organization of 
tribal governments. We hope this hearing serves to bring to light the 
important role Congress has in ensuring tribes are empowered to protect 
their citizens and give them every opportunity to advance themselves 
and their families.
    A tribal member on a rural eastern Washington reservation obtained 
a pay day loan from a border town to purchase household expenses during 
the winter. She lives on a fixed income and raises her grandchildren. 
The tribal member did not realize how the loan functioned and the high 
costs associated with the loan. The loan came due and the tribal member 
paid part of the loan but continued to have an outstanding balance 
owned. A few days after she paid the payday loan, her rent became due 
to the tribal housing authority. She did not have enough money to pay 
the rent in full so she paid a portion of the rent but was not 
sufficient under her lease. Within a few days she was provided with a 
notice that she had not paid her rent in full and she had a meeting 
with her case worker as required by the tribal housing code but there 
was no accommodation for her because she did not have enough money to 
pay her rent.
    The month went on and she was unable to pay the rest of the rent 
and what she still owed on the pay day loan. When she received her 
public benefits the next month she paid a portion of the pay day loan 
but still could not pay it off. Again she did not make her rent 
payment. This time, there was no meeting with a case worker; she was 
given an eviction summons in tribal court. The impact of an eviction 
from a tribal housing authority is serious because the tribal citizen 
can no longer rent a tribal housing authority unit leaving her no other 
options in her home community. In the end this tribal member was 
evicted, still had a pay day her debt and had the same obligations to 
buy food, clothing and provide housing for her grandchildren.
    Where was the due diligence? Where is the financial responsibility 
of the lender? And where are the regulations that used to protect our 
people that need it the most?
    This Committee knows well that American Indian Tribes continue to 
occupy the bottom of key indicators of prosperity: employment, asset 
holdings, home ownership, educational attainment and economic progress.
    Because of the persistent lack of economic opportunity, a 
sustainable financial services market and tribal jurisdictional issues, 
there have only been a handful of banks that serve tribal communities. 
As a result, tribal citizens continue to lack basic financial services 
or choices that most Americans have come to take for granted. Tribal 
members have limited access when financing a home, starting a business 
or purchasing necessary property like cars needed to make a living.
    The vacuum created by the lack of responsive and regulated 
financial institutions offering competitive consumer financial products 
has been quickly filled by predatory lending firms that have 
proliferated after usury laws were lifted a few years ago--especially 
in transient and unbanked communities, like military bases and 
reservations.
    The effect of having a tribal population unbanked and subject to 
predatory financial firms is that it strips an already vulnerable 
population of the opportunity to advance by preventing them from 
building assets, equity and wealth. And the result of individuals 
having limited and sometimes no viable options for responsive bank 
products means tribal citizens pay higher fees and much higher interest 
rates leaving tribal citizens that live check to check more vulnerable 
when one of life's predictable emergencies arises such as a death in 
the family or medical bill, forcing a cycle of debt.
    There is real concern by tribal leaders to address personal 
property and income loans by non-banking lending firms that target a 
captive Native population. The complete lack of due diligence--required 
in every other aspect of the financial services industry--coupled with 
inadequate fee and interest-rate limitations make defaults predictable 
and payments from a fixed income very difficult. Especially considering 
the debtors expenses increase, compelling multiple loans from the same 
limited income.
    This lack of industry accountability is why banking laws and 
limitations were imposed in the first place and a core reason that our 
tribal population will be prevented from building equity and wealth 
through property ownership.
    While families with greater means or financial education turn to 
regulated financial institutions or are better able to negotiate terms; 
those with limited means and financial experience tend to get easily 
caught in a cycle of debt that is all but impossible to escape on a 
fixed income and exponentially increasing expenses.
    While the problems run deep and will take a while to work through, 
we feel we can focus on a 3-pronged approach to moving toward a 
solution.

        1. Financial Choice--Indian Country is unbanked. There is a 
        lack of regulated banking options that are responsive to tribal 
        community needs. This tends to be true regardless of a tribe's 
        success in building a local economy. The Community Development 
        Financial Institutions (CDFI's) have just started to meet the 
        needs of some tribal communities and Indian country is 
        appreciative of the support Congress has shown by increasing 
        CDFI funding, however, this serves a very specific and limited 
        role in tribal communities and falls short of providing viable 
        and responsive banking to the Native population. Congress 
        should work to provide an incentive for banks and credit unions 
        to serve the tribal population and provide competitive products 
        and services that meet the unique financial needs of the tribal 
        community.

        2. Financial Education--Tribal governments need to be able to 
        incorporate culturally relevant financial literacy programs at 
        a young age to; understand fundamental credit issues and 
        alternatives, understand the value an types of savings programs 
        available such as ``individual development accounts (IDAs)'' 
        and learn to take advantage of available programs such as 
        ``Volunteer Income Tax Assistance (VITA)'' to reduce the 
        incidence of Refund Anticipation Loans. In addition there is a 
        need to increase the presence of Intermediaries in tribal 
        communities. Tribal citizens need help when buying a car, 
        financing a mobile home or accessing a micro-loan to start a 
        business. Intermediaries are under-represented in Indian 
        country. These non-profits serve a key role in guiding 
        consumers to make better financial and life decisions.

        3. Jurisdiction--Non-bank lenders tend to cluster around 
        reservations and military bases taking full advantage of 
        financially unsophisticated consumers. To protect our soldiers 
        and sailors on federal military bases from the irresponsible 
        practices of payday lenders, car dealerships and tax preparers, 
        Congress passed a bill that places a cap on non-bank loans to 
        the military personnel. Congress should consider giving tribes 
        the same capability to protect their citizens with the ability 
        to opt into models such as the military fix. Congress should 
        also consider promoting responsive community banking in tribal 
        communities by giving tribes the authority to approve banks 
        that do business on their reservations in a manner similar to 
        state governments.

    Because we have been unbanked and under-banked for so long, we may 
appreciate having a lender of any sort serve the need in tribal 
communities. But do we really need to settle for lenders that are not 
part of our community like every other bank? And do we need to settle 
for loan shark rates with no consideration for an individual's ability 
to pay?
    We need to fix the underlying problems. We need jurisdiction, we 
need financial literacy and we need banks, credit unions, CDFI's and 
non-profits in Indian country. Our citizens deserve better.

    The Chairman. Chairman Allen, thank you very much for being 
here and for your testimony.
    Next we will hear from Donna Gambrell, Director of 
Community Development Financial Institutions Fund, the 
Department of the Treasury in Washington, D.C.
    Ms. Gambrell, thank you very much for being with us and you 
may proceed.

           STATEMENT OF DONNA J. GAMBRELL, DIRECTOR, 
    COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND, U.S. 
                   DEPARTMENT OF THE TREASURY

    Ms. Gambrell. Thank you. Good morning, Chairman Dorgan.
    I am pleased to be here today to testify on the issue of 
predatory lending in Indian Country. Before I begin, though, I 
would like to share with you that just last Saturday, I spent 
the morning at a financial education workshop for Native 
American interns at American University. The CDFI Fund 
sponsored this one-day workshop for approximately 100 young 
Native Americans participating in the Washington internship for 
Native students and the Udall Native American Congressional 
Internship programs.
    Financial education is one of the best ways to understand 
how to avoid predatory lending tactics. I hope that the 
students will use what they learned to make positive financial 
decisions in their lives, and will take the knowledge back to 
their communities.
    There is no clear-cut definition of a predatory loan. But 
many experts, and I believe certainly that the witnesses here 
today will agree, that it is the result of a company 
misleading, tricking and sometimes coercing someone into taking 
out a loan, typically at excessive cost and without regard to 
the consumer's ability to repay.
    What is clear-cut is the devastating impact that predatory 
lending can have in Indian Country. Several studies, including 
one recently conducted by First Nations Development Institute, 
in collaboration with the National American Indian Housing 
Council, highlight the extent of the problem. The report states 
that in Native communities, predatory lending has been a major 
concern for years. I concur with the report. Predatory lending 
is a serious issue in Indian Country, which makes this hearing 
today so very important.
    Briefly, CDFIs are community-based institutions that are 
certified by the CDFI Fund and serve low-income people in 
economically distressed communities. CDFIs use the Fund's 
financial awards to engage in a wide range of economic 
development activities. These investments include small 
business lending, affordable home mortgage products, financial 
education, homeownership counseling and other innovative 
solutions to meet community needs.
    The CDFI Fund's Native initiatives increase access to 
credit, capital and financial services through the creation and 
expansion of Native community development financial 
institutions, called Native CDFIs. The CDFI Fund provides 
financial assistance awards and technical assistance grants to 
these Native CDFIs through the Native American CDFI Assistance 
Program, or NACA program.
    Since 2002, we have awarded 148 grants, totaling $23 
million, to Native CDFIs serving 89 separate Native 
communities. In addition, the CDFI Fund has expanded the number 
of certified Native CDFIs by over 300 percent, from 14 in 2002 
to 47 today. Another 50 Native CDFIs are in the emerging phase.
    I would like to share a few examples of the efforts Native 
CDFIs and award recipients of the CDFI Fund are taking to 
respond to predatory lending and to promote financial education 
in their communities. Four Bands Community Fund serves the 
residents of the Cheyenne River Reservation in rural western 
South Dakota. With awards from the CDFI fund, Four Bands now 
offers micro-loans, small business loans and has recently 
started a credit enhancement loan of up to $2,500 to help 
residents repair their credit history.
    In addition, Four Bands offers several financial education 
courses, and offers an individual development account program 
designed to help people learn positive saving habits and how to 
begin to build assets.
    Another example can be found at the Lac Courte Oreilles 
Federal Credit Union in Hayward, Wisconsin. With awards from 
the CDFI Fund, they have developed the GOOD loan, which is an 
acronym for Get Out Of Debt. The credit union staff there 
reported in a Fund-sponsored study that will be completed later 
this year that the purpose of this product is to provide an 
alternative to payday loans that charge very high annual 
interest rates.
    Many payday loans have annual percentage rates of up to 400 
percent and sometimes more, while Native CDFIs are developing 
short-term consumer products with annual percentage rates 
between 15 and 18 percent. Our data from 2003 to 2006 
demonstrates that 81 percent of award recipients serving Native 
communities offered financial education. Sixty-six percent 
offered credit counseling services. This demonstrates that 
supporting Native CDFIs is critical in order to expand the 
reach of financial education and credit counseling in Native 
communities.
    The CDFI Fund recognizes the importance of training and 
technical assistance to Native CDFIs through its expanding 
Native Opportunities Initiative. This initiative focuses on 
increasing the number of Native CDFIs, strengthening the 
operational capacity, and guiding Native communities in the 
creation of important financial education and asset building 
programs. The CDFI Fund plans to continue supporting the 
nationwide growth of Native CDFIs through its funding program 
and through its training series. The success of the NACA 
program and training series makes out continued involvement 
critical to the institutional development and capacity building 
of Native CDFIs.
    We have made great progress. But barriers to credit and 
capital still exist in Indian Country. The CDFI Fund is open to 
working with the Committee and Congress on what greater role, 
if any, we should play in further helping Native communities 
overcome these barriers.
    Mr. Chairman, thank you for holding this important hearing 
and for allowing the Treasury Department to testify. I look 
forward to working with the Committee and its staff to further 
address the prevalence of predatory lending in Indian Country. 
I am happy to answer any of your questions. Thank you.
    [The prepared statement of Ms. Gambrell follows:]

     Prepared Statement of Donna J. Gambrell, Director, Community 
    Development Financial Institutions Fund, U.S. Department of the 
                                Treasury
Introduction
    Good morning. Chairman Dorgan, Vice Chairwoman Murkowski and 
members of the Senate Committee on Indian Affairs, I am delighted be 
here today to testify on the issue of predatory lending in Indian 
Country. My name is Donna Gambrell and I am the Director of the U.S. 
Department of the Treasury's Community Development Financial 
Institutions (CDFI) Fund.
    To begin, I would like to share with you that just last Saturday I 
spent the morning at a financial education workshop for Native American 
interns at American University. The CDFI Fund sponsored this one-day 
workshop for approximately 100 young Native Americans participating in 
the Washington Internship for Native Students (WINS) and Udall Native 
American Congressional Internship programs. The students were 
instructed on the dangers of predatory lending and how to identify such 
practices so that they can be avoided. I hope that the students will 
use what they learned to make positive financial decisions in their 
life and to take the knowledge back to their Native communities.
    Created in 1994, the CDFI Fund has an important mission: to expand 
the capacity of financial institutions to provide credit, capital and 
financial services to underserved populations and communities 
throughout the United States. To meet its mission, the CDFI Fund 
provides monetary awards to Community Development Financial 
Institutions--or CDFIs. Our awards serve as investments to help CDFIs 
build their capacity to serve low-income people and communities that 
otherwise lack access to credit, capital, financial products and 
services. Currently, there are over 800 certified CDFIs.
    CDFIs are specialized financial institutions operating in markets 
that have not been adequately served by traditional financial 
institutions. They comprise a variety of types of institutions, 
including loan funds, venture capital funds, and insured depository 
institutions, such as credit unions and banks. In addition to providing 
financial services and products, CDFIs provide services, such as 
financial literacy training, technical assistance, and credit 
counseling to help consumers use credit effectively.
CDFI Fund Native Initiatives
    The CDFI Fund supports three types of applicants under the Native 
Initiatives: (1) certified Native CDFIs; (2) emerging Native CDFIs; 
and, (3) sponsoring entities. Currently, 47 Native CDFIs have been 
certified by the CDFI Fund and another 50 Native CDFIs are emerging or 
sponsoring entities. In FY 2007, 19 organizations received a total of 
$3.6 million though the Native American CDFI Award (NACA) Program. To 
date, 148 grants for approximately $23.5 million have been awarded to 
Native CDFIs serving 89 Native communities. In addition, the CDFI Fund 
has awarded over $7.5 million in contracts to organizations that 
provide capacity-building and financial services training programs.
    The CDFI Fund has a longstanding commitment to Native communities. 
The Fund's publication in 2001 of the congressionally mandated Native 
American Lending Study identified 17 barriers to credit and capital, 
including the lack of financial institutions on or near Indian lands. 
Since that time, the CDFI Fund has awarded $23 million to Native 
communities.
    The CDFI Fund's Native Initiatives are designed to increase the 
access to credit, capital and financial services through the creation 
and expansion of CDFIs that serve primarily Native communities. The 
CDFI Fund works to achieve these objectives through two principle 
strategies:

        1. Native American CDFI Assistance Program--A monetary award 
        program that provides support to Native CDFIs and entities 
        proposing to become or create Native CDFIs and to build their 
        capacity to better address the community development and 
        capital access needs of Native communities. Through the NACA 
        Program, the CDFI Fund provides financial assistance awards to 
        certified Native CDFIs, and technical assistance grants to 
        Native CDFIs and entities proposing to become or create Native 
        CDFIs.

        2. Expanding Native Opportunities--A training program that 
        fosters the development of new Native CDFIs, strengthens the 
        operational capacity of existing Native CDFIs, and guides 
        Native communities in the creation of important financial 
        education, asset building, and entrepreneurial programs.

Native CDFIs Respond to Predatory Lending
    With that background, I would like to focus on the important 
purpose of today's hearing. There is no clear-cut definition of a 
predatory loan, but many experts agree that it is the result of a 
company misleading, tricking and sometimes coercing someone into taking 
out a loan, typically at excessive costs and without regard to the 
consumer's ability to repay. What is clear is the devastating impact 
that predatory lending can have in Indian Country. Several studies, 
including one recently conducted by First Nations Development Institute 
(FDNI), in collaboration with the National American Indian Housing 
Council (NAIHC), highlight the extent of the problem and demonstrates 
the negative impacts of predatory lending in Indian Country.
    Through the NACA Program, the CDFI Fund supports Native CDFIs to 
ensure that they are stable, independent financial institutions that 
offer loan products and development services to meet the needs and 
demands of their Native communities. As alternatives to predatory 
lending practices, Native CDFIs generally make lower interest consumer 
loans available to community members so as to increase the consumer's 
experience with low cost lending products which, in turn, decreases the 
demand for short-term and unaffordable consumer credit. Native CDFIs 
also provide development services, such as credit counseling and 
financial education, offer personalized technical assistance to help 
borrowers avoid unsustainable credit practices, and provide credit 
repair and asset-building programs.
    The CDFI Fund collects institutional data from CDFIs that receive 
its funding. Through our data collection system, known as the Community 
Investment Impact System (CIIS), we see evidence that CDFIs provide 
services as a preventive measure to predatory lending. For example, 
data from 2003 to 2006 demonstrates that 81 percent (76 of 94 
responses) of the funding recipients serving Native communities offered 
financial education; 66 percent (62 of 94) offered credit counseling 
services. In total, 4,423 Native clients received either financial 
education or credit counseling services. This evidence clearly shows 
that Native CDFIs are offering services to prevent predatory lending in 
their communities.
    Under our NACA Program, the CDFI Fund has a unique funding 
application consisting of a comprehensive business plan that requires 
detailed analysis of the market and business strategy for each 
applicant, including narratives of its financial products and services. 
Recent funding rounds of the NACA Program have demonstrated that many 
applicants seek funding to offer affordable financial products and 
services as an alternative to payday loan shops located in or near 
their communities that provide short-term consumer loans with high 
rates and fees. Many predatory loans have annual percentage rates of 
upwards to 400 percent, while Native CDFIs are developing short-term 
consumer products with rates between 15 percent and 18 percent.
    Native CDFIs are also offering credit repair loan programs, payroll 
advance programs and low-cost credit programs. Recently, Native CDFIs 
have also started offering services in tax preparation and established 
Volunteer Income Tax Assistance (VITA) sites. VITA sites provide free 
tax preparation assistance to help low income consumers avoid costly 
Refund Anticipation Loans (RALs) and fees often associated with paid 
tax preparation services. The volunteer tax preparers also help 
qualified families capture the millions of unclaimed tax credits 
available under the Earned Income Tax Credit (EITC).
    I would like to share with the Committee a few specific examples of 
how Native CDFIs are successfully developing innovative products and 
services that combat predatory lending and promote financial education.

        1. Turtle Mountain CDFI, located in north central North Dakota, 
        serves the Turtle Mountain Band of Chippewa. The community 
        suffers from an unemployment rate of 65 percent among the 
        16,500 enrolled members living on or near the reservation. A 
        diverse group of partners, including the Tribal Council, 
        Pathways to Prosperity, the Tribal high school, and housing 
        authority came together to create the Turtle Mountain CDFI in 
        21 short months. With only two full-time staff Turtle Mountain 
        CDFI is providing financial counseling, homebuyer education, 
        and loan packages to residents that otherwise could fall victim 
        to predatory lenders. Turtle Mountain CDFI has received two 
        NACA awards for a total of $268,000.

        2. Four Bands Community Fund is a 501(c)(3) nonprofit 
        corporation serving the residents of the Cheyenne River 
        Reservation in rural western South Dakota. The Cheyenne River 
        Reservation has a land area approximately the size of 
        Connecticut with some of the highest poverty figures in the 
        nation. Four Bands offers micro-loans and small business loans; 
        in addition, the organization has recently started a credit 
        enhancement loan of up to $2,500 to help a person repair his/
        her credit history. In addition, Four Bands offers several 
        financial education courses every year, and offers an 
        Individual Development Account program designed to help people 
        learn the savings habit and build assets. Four Bands has 
        received a significant amount of funding from the CDFI Fund--
        approximately $1.3 million in multiple awards.

        3. The Northern Shores Loan Fund (NSLF) is an emerging Native 
        CDFI located in Harbor Springs, Michigan. The NSLF serves 
        Tribal members of the Little Traverse Bay Bands of Odawa 
        Indians and provides loans in the three-county area surrounding 
        the Tribal headquarters. NSLF offers a range of loan products 
        and developmental services. NSLF provides three types of 
        business loans: micro loans, small business loans, and Tribal 
        corporation loans. Its target audience is Tribal members within 
        the traditional service area, but it is also interested in 
        lending money to other Tribes and other Native American 
        individuals nationwide. NSLF plans to work with the Tribe's 
        housing and education departments to offer financial education 
        and to develop a partnership with the local community college. 
        It also has a relationship with a local non-Native CDFI and 
        plans to partner with it to offer some services. NSLF has 
        received $258,991 from the CDFI Fund--through the Little 
        Traverse Bay Bands of Odawa Indians, its fiscal sponsor. It was 
        awarded a NACA grant in 2005, and another in 2007.

        4. The Lac Courte Oreilles Federal Credit Union (LCOFCU) in 
        Hayward, Wisconsin has developed the ``GOOD'' loan, which is an 
        acronym for ``Get Out Of Debt.'' LCOFCU staff reported in a 
        Fund-sponsored study (to be completed later this year) that the 
        purpose of this product is to provide an alternative to payday 
        loans, which charge very high annual interest rates. LCOFCU has 
        received a single 2002 CDFI Fund technical assistance award 
        which it used to hire a consultant to help develop loan 
        policies and collection policies and in-house policies for 
        working with low-income clients.

Expanding Native Opportunities
    ``Expanding Native Opportunities'' is a training initiative that 
focuses on increasing the number of Native CDFIs, strengthening the 
operational capacity of existing Native CDFIs, and guiding Native CDFIs 
in the creation of important financial education and asset-building 
programs for their communities. These programs are fully funded by the 
CDFI Fund and administered by contractors that are selected through a 
competitive bidding process.

        1. Native Communities Financing Initiative (NCFI): The CDFI 
        Fund contracts for the provision of training and technical 
        assistance to Tribes, Tribal programs, Native nonprofits and 
        community development practitioners interested in developing 
        Native CDFIs through the NCFI. NCFI is an intensive series of 
        workshops and follow-up technical assistance conducted over a 
        12-month period to help Native Communities develop and expand 
        Native CDFIs. Since 2003, nearly 235 Native Communities and 
        organizations have participated in NCFI workshops. The CDFI 
        Fund has expanded the training to provide technical assistance 
        to existing Native CDFIs and launched a new Native Credit Union 
        development program.

        2. Native Financial Skills and Enterprise Initiatives (NFSEI): 
        In 2007, the CDFI Fund awarded the NFSEI contract. The 
        contractor provides training and technical assistance in two 
        activity areas: financial education and entrepreneurship 
        development. The financial education activity focuses the 
        training of trainers in the Building Native Communities 
        financial education curriculum and related tools such as the 
        Earned Income Tax Credit, Individual Development Accounts, and 
        integrated asset building programs. The entrepreneurship 
        activity focuses on entrepreneurship development systems, 
        curricula integration and program development at the local 
        level.

        3. Native Individual Development Account Initiative (NIDAI): 
        Training and technical assistance is available to Native CDFIs 
        and like organizations to create and administer Individual 
        Development Account (IDA) programs. Preparation for IDA program 
        practitioners is provided through three-day training sessions 
        designed to help Native CDFIs, Tribes, or other Native 
        organizations start, implement, and sustain IDA programs in 
        their communities. During the training sessions, participants 
        are guided toward developing plans customized to their 
        communities; after participation in the training institute, 
        they are offered technical assistance in local program start-up 
        and implementation.

    The Expanding Native Opportunities training series has seen a 
strong increase in demand within Native communities. Essentially, NCFI 
is a ``nuts and bolts'' development and implementation training on how 
to build a Native CDFI. The NFSEI effort also trains CDFIs on how to 
build a financial education program in a Native community. These 
training efforts offer technical assistance from professional community 
development practitioners with experience in Indian Country, which 
program evaluation has shown to be the most important aspect of the 
series. Since 2003, 75 different organizations have participated in the 
NCFI program and 30 have are emerging Native CDFIs. Twelve 
organizations have achieved the CDFI Fund's certification status. The 
NFSEI program has had 254 participants from 112 organizations; 40 
financial education programs in Native communities are up and running 
today.
FY 2008 Award Round
    Congress appropriated $8 million for the CDFI Fund's Native 
activities in FY 2008. For the FY 2008 award round, the CDFI Fund 
received 45 applications requesting over $17 million from certified 
Native CDFIs, emerging Native CDFIs, and Sponsoring Entities. 
Sponsoring Entities are organizations, typically Tribes or Tribal 
Housing Authorities, seeking to create a Native CDFI in their 
community. I am pleased to notify the Committee that we expect to 
announce the FY 2008 awardees by the end of the month.
    The success of the NACA Program and training series makes our 
continued involvement critical to the institutional development and 
capacity building of Native CDFIs. The CDFI Fund plans to continue 
supporting the nationwide growth of Native CDFIs through its funding 
program and training series. While there has been much success in the 
CDFI Fund's Native Initiatives, we recognize that barriers to credit 
and capital still exist in Indian Country. As I mentioned earlier, the 
Native American Lending Study identified 17 barriers in 2001. We have 
made progress, but further efforts to address barriers still exist. The 
CDFI Fund is open to working with the Committee and Congress on what 
role, if any, we should play in helping Native communities overcome 
these barriers.
Conclusion
    Mr. Chairman, thank you for holding this important hearing and for 
allowing the Treasury Department to testify. I look forward to working 
with the Committee and its staff to further address the prevalence of 
predatory lending in Indian Country. Thank you.

    The Chairman. Director Gambrell, thank you very much for 
being here.
    Darwin Brokke, you are President of a credit union in 
Devils Lake, North Dakota, Citizens Community Credit Union. You 
are here to give us your perspective on these issues. We 
appreciate your traveling to Washington, D.C. for that purpose.
    You may proceed.

 STATEMENT OF DARWIN BROKKE, PRESIDENT/CEO, CITIZENS COMMUNITY 
                          CREDIT UNION

    Mr. Brokke. Thank you, Chairman Dorgan. I appreciate being 
here today. Thank you for the opportunity to testify on behalf 
of the Credit Union National Association on predatory lending 
in Indian Country.
    CUNA represents about 90 percent of the credit unions in 
the Country. Those credit unions serve about 90 million 
members.
    My name is Darwin Brokke, and I am President and CEO of 
Citizens Community Credit Union in Devils Lake, North Dakota. 
We were founded in 1940, and my credit union currently serves 
about 10,700 members in areas around Devils Lake, Bisbee and 
Larrimore, North Dakota. Among our 10 branches, one is located 
on the Spirit Lake Reservation and one is in St. John, which is 
on the border of the Turtle Mountain Reservation.
    The lack of access to financial institutions plays a key 
role in poverty in any community. Those without access to 
financial institutions don't have the opportunity to build 
assets and accumulate wealth. In many cases, they are forced to 
use informal lending structures, including borrowing from 
family and friends and turning to payday lenders.
    Mr. Chairman, I see many of my members use payday lending 
services on somewhat of a regular basis. My staff and I can see 
this when we view a member's account information. We will see a 
deposit into an account from a payday lender. And when it comes 
time to clear the checks, we will often notice that a number of 
them have bounced. My credit union's daily overdraft list has a 
number of non-sufficient items payable to payday lenders.
    We have seen how some members, by using payday lenders, 
have really mismanaged their finances. This has resulted in 
poor credit scores for many of them, making it difficult for 
them to get financial help anywhere, including sometimes the 
credit union. There have been occasions when we have had to 
turn down a member for a loan, because we see that they are 
already in debt to payday lenders, and we don't want to be 
adding to the problem. When we see this happening with one of 
our members, we try to educate them on the risks and the costs 
involved in payday lending, then we try to help them with 
finding a suitable solution.
    Mr. Chairman, the problems associated with payday lending 
is a tough cycle to break. My credit union has two programs 
which we consider to be alternatives to payday lending. I think 
they help our members break out of this cycle. The first 
program is an open-end lending program, which we began back in 
1983. Open-end lending essentially means that one can add to an 
existing loan under various circumstances, and it can work much 
like a revolving credit arrangement.
    Once it is opened, open-end lending allows for multiple 
advances, except without the need for all the additional 
paperwork, such as applications and notes. Each advance request 
can be quickly underwritten and disbursed without the labor and 
the cost of other types of loans, like closed-end loans. 
Furthermore, open-end lending is convenient for the member. He 
or she doesn't even have to come into the office to sign papers 
when they need some funds, they simply pick up the phone and 
call.
    One advantage with open-end lending is that it anticipates 
repeat usage. This helps both the credit union and the members. 
The credit union is able to handle additional loan volume 
without the extra staff, and the member has the opportunity to 
take an advance with very minimal effort.
    Secondly, and most recently, Citizens Community Credit 
Union began offering a line of credit program called a reward 
line of credit. Because of my experience with loans that I made 
to people working for tribal businesses, I learned quickly that 
a lot of times there would be multiple requests for advances on 
a frequent basis. I also realized that many individuals were 
beginning to use payday loans as a means to get these advances.
    I understood that this could turn out to be a real problem, 
so my credit union implemented this reward credit program. The 
program carries many of the same characteristics of open-end 
lending; however, it has a specific criteria one must meed in 
order to qualify. The main difference between the two programs 
is the size of the line of credit, but the advances are self-
funded. The program is only available to individuals with lower 
credit scores. It requires payroll deduction for repayment. The 
minimum advance is only $25, with a minimum repayment of 5 
percent of the balance. Plus, $20 goes into a savings account 
to help develop the savings habit. There are no fees at all 
associated with the program, and the interest rate is held at 
16 percent.
    Mr. Chairman, on a daily basis, we make loans to our 
members during challenging times for them, whether it is $30 to 
a member to pay their heating bill or a $50 loan to a member 
who can purchase their medication. To us, these types of 
situations are part of our typical work day. To pull one 
anecdote out of a thousand would be impossible, and it would be 
really an injustice to take such a narrow focus. We do what we 
do because we believe in the credit union philosophy of people 
helping people. We are lucky in that we understand the culture, 
we understand the people and we understand the risks. This 
helps us to manage our program and serve our community to the 
best that we can possibly.
    This concludes my oral remarks. It is an honor to be here 
today and I look forward to any questions you may have.
    [The prepared statement of Mr. Brokke follows:]

Prepared Statement of Darwin Brokke, President/CEO, Citizens Community 
                              Credit Union
    Good morning, Chairman Dorgan, Vice Chairwoman Murkowski, and 
Members of the Committee.
    Thank you for inviting me to testify today on behalf of the Credit 
Union National Association (CUNA) regarding predatory lending in Indian 
Country. CUNA is the largest credit union trade association, 
representing approximately 90 percent of the nation's 8,400 state and 
federally chartered credit unions which serve approximately 90 million 
members. This testimony will address the following:

        The Cycle of Payday Lending
        The Credit Union Response to the Cycle of Payday Lending:

       Citizens Community Credit Union, Devils Lake, ND
       The Native American Credit Union Initiative

        Examples of Credit Union Service to Native American 
        Communities:

       Bear Paw Credit Union, Havre, MT
       Tongass Federal Credit Union, Metlakatla, AK

        The Credit Union Record of Lending to Native Americans
        Legislative Initiatives to Enhance Credit Union Service to 
        Native American Communities

Introduction
    My name is Darwin Brokke, and I am President and CEO of Citizens 
Community Credit Union in Devils Lake, North Dakota. Founded in 1940, 
my credit union serves 10,700 members in the area around Devils Lake, 
Bisbee and Larimore, North Dakota. Among our ten branches, one is 
located on the Spirit Lake Reservation and one is in St. John on the 
border of the Turtle Mountain Reservation.
    Lack of access to financial institutions plays a key role in 
poverty in any community. The additional challenges associated with 
serving Native American communities make it even more the case in these 
areas. Those without access to financial institutions do not have the 
opportunity to build assets and accumulate wealth. And, in many cases, 
they are forced to use informal lending structures, including borrowing 
from family or friends, or turning to payday lenders.
    Credit unions are a natural ally in the effort to reduce predatory 
lending in Indian Country. After all, the purpose of credit unions is 
to promote the economic well being of all people through a system which 
is cooperative, member-owned, volunteer directed, and not-for-profit; 
to provide a secure financial alternative for all consumers; and to 
provide financial and related products and services to members.
    I would like to focus my testimony today first on my experience at 
Citizens Community Credit Union with respect to our members' use of 
payday lenders, refund anticipation loans and our open-end lending 
program. My written testimony describes some of the challenges credit 
unions throughout the country are facing with respect to service to 
Native American communities, and includes examples of how credit unions 
in other states are serving these communities, as well as a description 
of legislation which would permit credit unions to better serve all of 
their members, including Native Americans.
The Cycle of Payday Lending
    Mr. Chairman, I see many of my members use payday lending services, 
some on a regular basis. My staff and I can see this when we view a 
member's account information, particularly their checking account. We 
will see a deposit on their account from a payday lender. When it comes 
time to clear their checks, we will often notice that a number of them 
have bounced checks. My credit union's daily overdraft list has a 
number of bounced checks made out to payday lenders.
    We have seen how some members, by using payday lenders, have really 
mismanaged their finances. And this has resulted in very poor credit 
scores for these members, making it difficult for them to get financial 
help anywhere, including, sometimes, the credit union. There have been 
occasions when we have had to turn down a member for a loan because we 
see that they are already in debt to payday lenders--we do not want to 
add to the problem of insurmountable debt. When we see this with one of 
our members, we will try to educate him on the risks involved in payday 
lending, and we will try to help him them find products that could be 
part of the solution.
    Mr. Chairman, I also see other lenders take advantage of my members 
through tax refund anticipation loans. At the time this product was 
first developed, my credit union was one of the first financial 
institutions to offer a refund anticipation loan. We would allow 
members to come in with their 1040 and electronically file it. We would 
then confirm the refund with the IRS and issue an advance.
    Although we charged minimal fees to participate, we began to 
realize the program was more of a disservice to its members. Over a 
period of time, I realized it was a rip-off for my members. They would 
often be better off by waiting for the entire refund to come in and not 
pay any fees on any resulting loan. When we gave up the program, I 
noticed that some members began using other businesses to take out 
these refund loans.
    By using a tax refund anticipation loan, members can end up owing 
money instead of receiving their tax refund. Considering the fees 
associated with the refund anticipation loan, the members are at a 
disadvantage. What members may not realize is that you pay the fee for 
the loan, in addition to fees for check cashing and tax preparation. 
When it is all said and done, some members can lose hundreds of dollars 
that they would have received had they waited a few more weeks. We now 
advise our members to stay away from refund anticipation loans.
The Credit Union Response to the Cycle of Payday Lending
    Mr. Chairman, I believe that financial education is perhaps the 
best solution to combat payday lending. My credit union has worked hard 
to educate our members on the risks of payday loans, especially the 
high interest rate associated with them. It has been my observation 
that the payday loans are going to members with little money to pay it 
back. For the vast majority of my members, these payday loans are doing 
more harm than good.
    But financial education alone is not the solution. Even with our 
financial literacy efforts, some members do not always understand that 
the high interest rates associated with these loans can get them stuck 
in a cycle of debt. They cannot see that payday loans are making it 
more difficult for them to realize a stable financial situation. And, 
the longer they have subjected themselves to abuse by payday lenders, 
the more difficult it is to offer products to help these members 
because their credit is completely shot. At Citizens Community Credit 
Union, our members have two programs serving as alternatives to payday 
lending products.

   Citizens Community Credit Union: Open-End Lending Program 
        and Reward Line of Credit Program

    In 1983, when I became President of Citizens Community Credit 
Union, I immediately recognized a need to develop a strong relationship 
with the tribe and the tribal members. This need was two-part: the need 
for financial education and also the need for greater access to 
financial services and products.
    It seemed as though most financial institutions would not make 
loans to Native Americans back when I started. Perhaps things have 
changed some now that everything is credit score driven. However, back 
in the 1980s, that was not the case. The need for financial services 
was so great and the lending environment was so fragile that I didn't 
even pull credit bureau reports; instead, we went out into these 
communities and built relationships with the people. In addition to 
reviewing credit histories and credit scores, much of our lending 
continues to be relationship driven, based on a level of trust between 
the credit union and the members.
    Citizens Community Credit Union instituted an Open-End Lending 
program in 1983. Open-End Lending essentially means that one can add to 
an existing loan, under certain circumstances. It can work much like a 
revolving line of credit. Once opened, Open-End Lending allows for 
multiple advances, except without the need for all the additional 
paperwork, such as applications and notes. Each advance request can be 
quickly underwritten and disbursed without the labor and costs of other 
loans. Furthermore, Open-End Lending is convenient for the member; he 
or she does not need to visit the office to sign papers each time they 
need funds, they can simply pick up the phone and call.
    Traditional closed-end loans have a specific maturity day; because 
of this, refinancing required establishing a completely new loan. In 
offering an open-end solution, new loans made for autos and other types 
of collateral will require much less paperwork and offer additional 
options, such as subsequent loan advances.
    One advantage of Open-End Lending is that it anticipates repeat 
usage; this helps both credit unions and their members. The credit 
union is able to handle additional loan volume without the extra staff, 
and the member has the opportunity to add an advance with minimal 
effort.
    Generally, the interest rate on open-end loans is associated with 
the collateral offered for the overall Open-End Lending program. Also, 
factors to consider when determining the interest rate include the 
individual's credit score, as well as the length of the loan. 
Generally, we can offer open-end loans with interest rates from 12 
percent, to as low as 5.9 percent.
    Recently, Citizens Community Credit Union began offering a line of 
credit program, called Reward Line of Credit. Because of my immediate 
experience with loans I made to people working for tribal businesses, I 
learned quickly that the employees would request multiple advances on a 
frequent basis. Furthermore, I realized many individuals were beginning 
to use payday loans as a means to get these advances. I understood that 
this could turn out to be a real problem, so my credit union 
implemented the Reward Line of Credit program.
    The Reward Line of Credit program carries many of the same 
characteristics of open-end lending; however it has specific criteria 
one must meet in order to qualify. The main difference between the two 
programs is that the line of credit is limited in size. This program is 
only available to those individuals who have lower credit scores, and 
requires payroll deduction for repayment. Furthermore, the minimum 
advance is $25, with a minimum repayment of 5 percent of the balance 
plus $20 that goes into a savings account. There are no fees associated 
with the program, and the interest rate is held at 16 percent.
    Mr. Chairman, there is considerable default risk with this type of 
lending. In most cases, if the member were to lose their job, there are 
generally few assets to resolve the debt. It is well known that the 
tribal court systems are not always the easiest to work with, making 
any recovery efforts very difficult. With that said, we have made a 
commitment to our members to continue offering these loans--we have a 
relationship with the Reservations, and the people have one with us. We 
will work with our members as best as we can to find a solution to any 
financial problem they may have.
    On a daily basis, we make loans to help our members during 
challenging times; whether it is a $30 loan to a member to pay his heat 
bill or a $50 loan so that a member can purchase her medication. To us, 
these types of situations are a part of a typical work day. To pull one 
anecdote out of a thousand would be impossible, and it would be an 
injustice to take such a narrow focus. We do what we do because we 
believe in the credit union philosophy of ``people helping people.'' We 
are lucky in that we understand the culture, we understand the people, 
and we understand the risks. This helps us manage our programs and 
serve our community.

   The Native American Credit Union Initiative: Identifying 
        Challenges; Identifying Solutions

    While solid statistics regarding the number of credit unions 
serving Native American communities are difficult to come by, I know 
that my experience is not unique within the credit union movement. In 
2006, the National Credit Union Foundation (NCUF) began implementing 
the Native American Credit Union Initiative, an effort to study credit 
union service to Native American communities.
    NCUF found that credit unions were serving Native Americans but 
details of the level of service were anecdotal and piecemeal. So, they 
instituted an informal survey of credit unions serving Native American 
communities to determine the types of products and services they offer 
and the degree to which they were serving this population. They also 
sought to facilitate the discussion, on a national level, of best 
practices for and barriers to service of Native Americans by convening 
a conference in July 2006 for credit unions serving Native Americans. 
Twenty-one credit unions responded to the NCUF informal, voluntary 
survey and fourteen credit unions participated in the July 2006 
conference.
    The average asset size of the survey respondents was $95 million 
and half of the credit unions responding to the survey had a ``low-
income'' designation by the National Credit Union Administration 
(NCUA). The ``low-income'' designation means the credit union is 
eligible for regulatory assistance in serving low-income fields of 
membership. Three of the credit unions responding to the survey were 
located on an Indian reservation.
    The responses to the survey showed that nearly all credit unions 
adapt their products to reflect members' and market needs, including 
those of Native Americans. For instance, a consumer loan might be based 
on credit history rather than credit scores for some Native American 
borrowers. The respondents also indicated that they provide Individual 
Development Accounts (IDAs) and Volunteer Income Tax Assistance (VITA) 
with financial education.
    Both the survey respondents and the conference participants 
identified understanding the tribal governing process and the tribal 
court system as one of the most difficult operational challenges to 
serving Native American communities. Each tribe has its own system, and 
special expertise is needed to understand Indian law.
    Another challenge identified by credit unions was the lack of 
financial literacy. As is the case with many Americans, tribal members 
often do not understand the long-term impact of their financial 
decisions, making them vulnerable to payday lenders and the chronic 
cycle of poverty. Like many Americans, not all Native American credit 
union members have developed a habit of saving on a regular basis, 
which jeopardizes their families' financial security and stability.
    The credit unions participating in the NCUF Initiative also 
indicated that mortgages on trust land are difficult to collateralize, 
making it risky to lend on trust land unless there is a government 
guarantee. The HUD Section 184 Indian Housing Guarantee Loan program 
can be bureaucratic and complex, according to the credit unions 
participating in the Initiative.
    The credit unions participating in the Initiative identified 
several opportunities for credit unions to serve Native American 
communities, including:

        Membership expansion: Native American credit union members are 
        usually very loyal once a trusting relationship between the 
        member and the credit union is developed. If someone shares 
        their positive credit union experience with a friend or family 
        member, the credit union has a very strong possibility of 
        adding a new member. Member loyalty presents a good opportunity 
        for membership expansion for credit unions serving Native 
        American communities.

        Financial education: As previously noted, credit unions want to 
        work with Native Americans and view this as an opportunity to 
        fulfill the movement's ``People Helping People'' mission. 
        According to the credit unions serving Native American 
        populations, the greatest financial education need involves 
        budgeting and long-term planning assistance. There is a need 
        for financial education not only in the tribal schools, but 
        also for Native American adults.

        Increased lending opportunities: The credit unions responding 
        to the initiative agreed that consumer loans, auto loans, home 
        mortgages--both on and off the reservation--construction 
        lending, micro-financing, and business lending are all 
        opportunities for credit unions serving Native American 
        communities.

        Accounts for tribal governments: Tribal governments can also be 
        a significant source of deposits for credit unions serving 
        these communities.

        Minimal competition from other financial institutions: Finally, 
        the credit unions serving Native American communities noted 
        there is minimal competition for new branches or ATM services. 
        Opening a new branch or providing ATM services on a reservation 
        can generate income to cover costs while also meeting a 
        community need. Some of the credit unions participating in the 
        Initiative have opened a branch in the casino where their 
        members work or in the high school their members attend.

Examples of Credit Union Service to Native American Communities
    Using funding from the Community Development Revolving Loan Fund 
(CDRLF) and the National Credit Union Foundation, several credit unions 
have been able to enhance service to Native American communities. I 
would like to highlight the experience of two very successful credit 
unions:

        Bear Paw Credit Union, Havre, Montana: Bear Paw Credit Union 
        received both CDRLF assistance as well as a grant from the 
        National Credit Union Foundation for software upgrades, staff 
        training, and financial education for its members. The credit 
        union's field of membership includes residents of the Fort 
        Belknap Indian Reservation. Since 2004, credit union 
        representatives travel weekly to the reservation (90 miles 
        roundtrip) and assist tribal members with their financial 
        needs. The National Credit Union Foundation grant helped the 
        credit union place two ATMs on the reservation to accommodate 
        cash needs. This has dramatically decreased tribal members' 
        dependence on predatory lenders and check cashers.

        Tongass Federal Credit Union (FCU), Metlakatla, Alaska: Tongass 
        FCU initiated financial education and savings programs to 
        schools in the communities they serve, helping promote the 
        importance of savings at an early age. The National Credit 
        Union Foundation made a $45,180 grant to Tongass FCU to enable 
        the credit union to serve a Native American island community 
        only reachable by ferry. In 2007, the credit union provided 
        financial education to 50 Metlakatla Indian families through a 
        personal financial advisor. The families learned about savings, 
        credit, budgeting, and online financial tools.

The Credit Union Record of Lending to Native Americans
    Home Mortgage Disclosure Act (HMDA) data from 2006 makes it clear 
that credit unions are more likely than other lenders to grant loans to 
Native Americans. The HMDA data also shows that credit unions generally 
lend to Native Americans on more favorable terms. That's not 
surprising--as member-owned, not-for-profit financial cooperatives, 
credit unions care deeply about their member-borrowers.
    Specifically, the most recent HMDA data shows that credit unions 
approved 66 percent of the applications they received from Native 
Americans. In comparison, other lenders approved just 52 percent of 
applications they received from this group. In addition, credit union 
pricing is more consumer-friendly to Native Americans. Only 5 percent 
of single family mortgage loans originated by credit unions were high-
rate loans while 28 percent of such loans originated by other lenders 
(i.e., non-credit union financial institutions) were high-rate loans. 
High-rate loans are defined as those with interest rates 3 percentage 
points or more above the rate on comparable-maturity Treasury 
securities.
Legislative Initiatives to Enhance Credit Union Service to Native 
        American Communities
    Mr. Chairman, there are challenges and opportunities for credit 
unions serving Native American communities. While not envisioned to 
exclusively encourage credit union service to Native American 
communities, two bills contain provisions that would assist credit 
unions in these efforts.

        S. 2957, the Credit Union Regulatory Improvements Act: S. 2957, 
        as introduced by Senator Lieberman, contains several provisions 
        aimed at giving credit unions the flexibility to better serve 
        their members. In particular, S. 2957 would clarify that all 
        federally chartered credit unions are eligible to add areas 
        which qualify under as a Community Development Financial 
        Institution Investment Area or a New Markets Tax Credit Area to 
        their field of membership. Current law restricts single-sponsor 
        and community chartered credit unions from applying to serve 
        underserved areas. The companion bill to S. 2957 in the House 
        is H.R. 1537, introduced by Representatives Paul Kanjorski and 
        Ed Royce, which has 148 cosponsors.

        H.R. 5519, the Credit Union Regulatory Relief Act: H.R. 5519 
        also contains a similar provision addressing credit union 
        service to underserved areas. It also contains a provision that 
        would permit federally chartered credit unions to offer payday 
        lending alternatives to non-members within their field of 
        membership. This provision is modeled after a section in the 
        Financial Services Regulatory Relief Act of 2006 enabling 
        federally chartered credit unions to offer check cashing and 
        remittances services to non-members within their field of 
        membership.
Conclusion
    Mr. Chairman, thank you again for the opportunity to testify on 
this important issue. We share your concern regarding the availability 
of mainstream financial services to Native American communities and we 
stand ready to serve.

    The Chairman. Mr. Brokke, thank you very much for your 
testimony.
    Next we will hear from John Barkley. He is the Vice 
Chairman of the Umatilla Tribal Water Commission and the former 
Chairman of the Umatilla Tribal General Council at the 
Confederated Tribes of the Umatilla Indian Reservation in 
Pendleton, Oregon.
    Mr. Barkley, thank you for being with us. You may proceed.

STATEMENT OF JOHN BARKLEY, JR., VICE CHAIRMAN, UMATILLA TRIBAL 
                  WATER COMMISSION; ENROLLED 
   CAYUSE TRIBAL MEMBER, CONFEDERATED TRIBES OF THE UMATILLA 
                   INDIAN RESERVATION (CTUIR)

    Mr. Barkley. Good morning, Mr. Chairman.
    I am very pleased to represent my home and community. As a 
first time home buyer through the Wapayatat: Financial and 
Homeownership classes, which is orchestrated through our 
Umatilla Reservation Housing Authority, I will be providing 
testimony about my personal story and information about what my 
tribes are doing to combat predatory lending on the 
reservation.
    As you know, Native American people suffer the highest rate 
of poverty, unemployment, alcohol and drug abuse, high school 
dropout rate, diabetes, heart disease. As such, they are more 
susceptible to financial woes and thereby vulnerable to 
predatory lending and the unethical enticements resulting in 
exorbitant interest rates, unrealistic terms and conditions, 
counterproductive to creating healthy communities and stable 
economies. At times, predatory lenders are the only hope for 
tribal members, because they have nowhere else to turn. This 
leaves little nothing for savings, they essentially survive 
payday to payday, rely on social services, or hedge their 
meager quarterly gaming dividend.
    Payday loan venues, rent-to-own vendors, shady car dealers 
and credit card companies and financial institutions take 
advantage of people's lack of financial education. But through 
education and extensive counseling, offered through our six-
week financial literacy program we call Wapayatat, which means 
``to learn,'' we were able to train nearly 400 tribal members 
about cleaning up their credit, improving their credit rating, 
assessing unnecessary spending habits and how to avoid the 
trappings of credit cards, late fees, interest rates exceeding 
28 percent and taking years to pay off maxed-out credit cards.
    Instead, they come to learn how to control their finances, 
to save, avoid frivolous spending, and how to buy a car or 
traverse the complex, overwhelming process of saving money for 
a down payment on a new home, selecting a home, finding a home 
site, seeking a competent contractor, working with the escrow 
agent, completing the paperwork and finally moving into a new 
home.
    Wapayatat provides individuals the tools to understand the 
process and the fees attached to borrowing money from any 
lender. What once was minimal access to finance capital has 
been resolved by Wapayatat and the Individual Development 
Accounts. This is a savings-match program that serves as an 
incentive for tribal members to save and improve their credit. 
Our program, Umatilla Saves, offers a three-to-one matching 
Individual Development Account in which we save $1,500 in six 
months, and an additional $4,500 was matched in our savings 
accounts that enabled us to use that as a down payment on our 
new home. We continued to save beyond our obligation because of 
what we learned through this program. My wife and I worked on 
our tri-merge credit reports and also our personal budget and 
other savings for future needs.
    Of course, the results of this diligent effort was a new 
manufactured three-bedroom, two-bath home, with a deck, two- 
car garage, one acre of trust land in the beautiful Blue 
Mountains at home in our reservation. It is a good sense home, 
energy-efficient, with energy-efficient appliances. It is an 
investment that we have made into ourselves and our community, 
and we continue to build and maintain and develop, because it 
is an asset that appreciates, and it is something that we have 
equity in.
    The Umatilla Saves and Umatilla Builds program have 
received national awards from the Harvard Honoring Nations and 
the National Association of Realtors Award. I believe it is a 
model and through our experience, a microcosm of how we can 
help build Indian nations. Empowering tribal members through 
financial literacy has proved to be a valuable tool in which 
they sense hope for stability, security, investment and for 
improving their living conditions and livelihoods. This sets 
the stage for subsequent generations. Lessons can be learned, 
and learning about financial literacy is where it starts.
    One alternative to predatory lending is to developing 
community development financial institutions that build on the 
success of Wapayatat and provides technical and educational 
resources to thwart predatory lenders. Building such capacity 
through collaborative partnership with Federal agencies and 
with legislative acumen, we can attend the plethora of 
intricate factors inhibiting full transition from financial 
literacy to stable family structure, healthy communities, 
viable economic well-being and self-sufficiency.
    It has been a privilege to speak before you this morning. 
Thank you, Honorable Chairman, for this opportunity. Your 
interest in this subject is so critically important in Indian 
Country.
    [The prepared statement of Mr. Barkley follows:]

Prepared Statement of John Barkley, Jr., Vice Chairman, Umatilla Tribal 
Water Commission; Enrolled Cayuse Tribal Member, Confederated Tribes of 
                the Umatilla Indian Reservation (CTUIR)
    Mr. Chairman, and members of the Committee, my name is John 
Barkley, Jr., former Chairman of the General Council and former member 
of the Board of Trustees for the Confederated Tribes of the Umatilla 
Indian Reservation. The Confederated Tribes consist of the Cayuse, 
Walla Walla and Umatilla in northeast Oregon. I am currently a Training 
Generalist with the Council for Tribal Employment Rights, a national, 
non-profit organization representing over 300 Indian Tribes and Alaskan 
Native Villages with Tribal Employment Rights Ordinances. I am pleased 
to represent my home and community. As a first-time homebuyer through 
the Wapayatat: Financial and Homeownership classes orchestrated through 
the Umatilla Reservation Housing Authority, I will be providing 
testimony about my personal story and information about what my tribes 
are doing to combat predatory lending on our reservation.
    Native American people suffer the highest rate of poverty, 
unemployment, high school drop out, diabetes and heart disease, and, as 
such, are more susceptible to financial woes, and thereby vulnerable to 
predatory lending and unethical enticements resulting in exorbitant 
interest rates, unrealistic terms and conditions counterproductive in 
creating healthy communities and stable economies. At time predatory 
lenders are the only hope for tribal members because they have nowhere 
else to turn. This leaves little to nothing for savings--they 
essentially survive pay day to pay day, rely on social services, or 
hedge their meager quarterly gaming dividend.
    Pay day loan venues, rent-to-own vendors, shady car dealers and 
credit card companies take advantage of people's lack of financial 
education, but through education and extensive counseling offered 
through the tribal financial literacy program called Wapayatat--which 
means ``to learn''--we were able to train nearly 400 tribal members 
about cleaning up their credit, improving their credit rating, assess 
unnecessary spending habits, and how to avoid the trappings of credit 
cards, late fees, interest rates exceeding 28 percent, and taking years 
to pay off maxed out credit cards. Instead they come to learn how to 
control their finances, to save and avoid frivolous spending, and how 
to buy a car or traverse the complex, overwhelming process of saving 
money for a down payment on a new home, selecting a home, finding a 
home site, seeking a competent contractor, working with an escrow 
agent, completing the paperwork and finally moving in your new home.
    Wapayatat provides individuals the tools to understand the process 
and the fees attached to borrowing money from any lender. What once was 
minimal access to finance capital has been resolved by Wapayatat and 
the Individual Development Account, or IDA's.
    This savings-match account served as an incentive to establish a 
savings account, clean up your credit, seek lower interest rates, and 
provide a down payment for fulfilling part of every American's dream--
to own your own home. The Umatilla Saves program offered a 3-to-1 
matching IDA in which we saved $1,500 in six months and an additional 
$4,500 was matched in our savings account. This enabled $6,000 for down 
payment on a new home, and we continued to save beyond our obligation 
because of lessons learned. My wife and I worked on our tri-merge 
credit report and also on a personal budget and other savings for 
future needs.
    The results of our diligent efforts was a new manufactured 3-
bedroom, 2-bath home, a deck, 2 car garage, and fenced yard on one-acre 
of trust land on the reservation in the beautiful Blue Mountains. The 
good cents, energy efficient home came with energy efficient 
appliances. Now we continue to maintain, build and develop our place so 
that this investment appreciates in value. Home is where the heart is, 
and our new home has our heart.
    Umatilla Saves, and the new Umatilla Builds program, which offers a 
5-to-1 match, have been the recipient of the 2006 Harvard Honoring 
Nations Award and the 2007 National Association of Realtor's Award. In 
light of the recent mortgage crisis experienced nationwide, Wapayatat 
is a model and our experience a microcosm of how we can help build our 
Indian Nations. Empowering tribal members through financial literacy 
has proved to be a valuable tool in which they sense hope for 
stability, security, investment and for improving their living 
conditions and livelihoods. This sets the stage for subsequent 
generations. Lessons can be learned, and learning about financial 
literacy is where to start.
    An alternative to predatory lending is to develop a Native 
community development financial institution that builds on the success 
of Wapayatat and provides additional technical, educational resources 
to thwart predatory lenders.
    Building such capacity through collaborative partnership with 
federal agencies and with legislative acumen, we can attend the 
plethora of intricate factors inhibiting full transition from financial 
literacy to stable family structure, healthy communities and viable 
economic well-being.
    It has been a privilege to speak before you this morning. Thank you 
Honorable Chairman, and committee members, for this opportunity and for 
your interest in this subject that is so critically important to many 
across Indian Country.

    The Chairman. Mr. Barkley, thank you very much.
    Finally, we will hear from Mr. Jamie Fulmer, who is the 
Director of Public Affairs for the Advance America Cash Advance 
Centers, Inc., and a representative for the Community Financial 
Services Association of America. My understanding is you 
represent about 60 percent of those institutions across the 
Country.
    So Mr. Fulmer, thank you for being here, and you may 
proceed.

         STATEMENT OF JAMIE FULMER, DIRECTOR OF PUBLIC 
     AFFAIRS, ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.; 
    REPRESENTATIVE, COMMUNITY FINANCIAL SERVICES ASSOCIATION

    Mr. Fulmer. Thank you, Mr. Chairman. It is a pleasure to be 
with you.
    As you said, I am here today representing the Community 
Financial Services Association, or CFSA, which does represent 
about 60 percent of the 25,000 payday lending storefronts that 
exist in this Country.
    The payday loan provides consumers with access to small 
amounts of short-term credit when they find themselves between 
paychecks with some type of unbudgeted or unexpected expense. 
The payday loan is not a predatory loan. We don't trick, mis-
lead or coerce our customers. The payday loan is typically a 
two-week loan in the range of $300 to $400, collateralized with 
a personal check, for which customers pay a $15 per $100 
borrowed fee. Customers are not unsophisticated or vulnerable. 
Our typical customer is the heart of the hard-working middle-
income American class. They have a household income of about 
$43,000, they all have a job or a steady source of income, they 
all have an active, open bank account. About 90 percent of them 
are high school educated, about half of them are college 
educated. About half of them own their own homes and about half 
of them have a credit card.
    These customers understand and choose the payday product 
because they understand it can be a more rational, cost-
competitive alternative to many of the other options available 
to them. They are certainly very pleased with the product and 
very satisfied with the service. Out of 14 million transactions 
that our company issued last year, there were only 80 
complaints to State agencies.
    Mr. Chairman, gone are the days when a consumer can go down 
to their local bank and borrow a small, unsecured, short-term 
from their local banker, probably from someone who was a 
neighbor of theirs. Now, consumers are forced to turn to more 
expensive options and more fee-based options offered by banks 
and financial institutions. Consider the fact that a bounced 
check costs consumers over $55 in out of pocket costs, once you 
have paid the bank that you wrote the check on and the merchant 
that you wrote the check to. Also consider the fact that 
overdraft protection fees or credit card late fees are in the 
$35 to $40 range, as are paying your rent or your mortgage 
bills late or your utility bills late.
    Customers choose the payday advance product not only 
because it can be a less expensive option, but there are no 
negative credit consequences, there is no revolving debt. It is 
a simple, straightforward transaction. There are a lot of 
research out there from independent analysis that suggests that 
consumers are better served when they have more access to 
financial options, not fewer.
    There has been much discussed about where we locate our 
centers. Our centers are located in high traffic, often 
suburban retail locations near where middle-income consumers 
work, near where they live and near where they shop. The ideal 
location is in a strip center with a Wal-Mart, Home Depot or 
another nationally-known retailer or large regional grocery 
store chain. Our centers resemble a small bank branch and our 
employees are focused on providing exceptional customer service 
to the customers they serve.
    Despite what the critics say, we don't target any specific 
demographic. I brought a map here to show an analysis of the 
licensed lenders in the State of North Dakota, that show where 
we locate. It clearly shows that we locate in the high traffic 
areas and the densely-populated areas within that State.
    Also in that regard, I would like to acknowledge the 
presence of Dr. Pat Cirillo from Cyprus Research at today's 
hearing. Dr. Cirillo has conducted a detailed analysis 
disputing the contention that payday lenders target any 
particular demographic of customer. I ask that Dr. Cirillo's 
testimony and analysis be included in the record of today's 
hearings.
    Mr. Chairman, there has been much discussion about the fees 
that we charge and the applicable annual percentage rate. It is 
important to note that we fully comply with all truth-in-
lending laws of this Country and in the States we operate in. 
We disclose the rates and fees, and in our centers, we have 
large 18 by 22 posters that have examples of those fees. They 
are included in the customer agreements that customers sign. 
They are easily accessible on members' websites and the 
Association's websites.
    Customers tell us, however, that the APR is not the 
appropriate value indicator for the payday lending product. 
First of all, a 391 percent APR that is so often quoted would 
only apply if a customer took out the same loan every two weeks 
for an entire year. That is not how customers use our product. 
Also, the APR is typically intended for a longer term credit 
product, such as a home loan or a car loan or any other type of 
loan that you would have outstanding for a long period of time. 
In fact, if you applied an APR calculation to the fee-based 
products that I mentioned earlier, offered by financial 
institutions, the bounced check fee, the credit card late fee, 
you would have a range of 800 to 1,300 percent.
    The fact of the matter is that we offer a product that is 
competitively priced in the marketplace we serve. Much has been 
made about the 36 percent annual percentage rate cap that was 
placed on folks in the military and has been recently adopted 
in a couple of States. First of all, let me make no mistake 
about it: a 36 percent rate cap is a ban of the payday lending 
industry.
    The Chairman. Is a what?
    Mr. Fulmer. It is a ban. An elimination. It would change 
the fee that we charge, which is typically now $15 per $100 to 
$1.38 per $100 borrowed. That would equate to 10 cents a day. 
We can't meet our payroll costs. We can't meet our other 
overhead costs, let alone assume the credit risk of basically 
an unsecured loan at 10 cents a day. Unfortunately, the 
consequence of a 36 percent rate cap results in the elimination 
of a valued option to consumers.
    While overwhelmingly, the number of consumers who use our 
product do so responsibly, 97 percent of the customers who take 
out a payday advance from Advance America will pay us back 
within a day or two of their due date, like any other credit 
product out there, we understand that there are folks who do 
not use the product responsibly. As an association of 
responsible lenders, CFSA supports reasonable regulations in 
all States that we operate in, and are active participants in 
that process.
    In addition, CFSA has adopted a comprehensive set of best 
practices designed to promote responsible use, prevent the 
cycle of debt, require full disclosure, ensure collection 
practices that are appropriate and proper, and ensures the 
transparency of the payday loan product. In addition, we have 
adopted an extended payment plan, which would give any borrower 
who feels like they have gotten in over their head with the use 
of payday loans the opportunity to pay off their obligation at 
no additional cost, at no additional fee, at no additional 
accruing interest over a longer period of time.
    We strive to be good corporate citizens individually and as 
an association, partnering with organizations all across the 
Country to support financial literacy efforts and other 
worthwhile causes.
    Mr. Chairman, I appreciate the opportunity to be with you 
today, and I ask that my written testimony, along with the 
attachments, be accepted into the record of this hearing. I am 
happy to answer any questions.
    [The prepared statement of Mr. Fulmer follows:]

Prepared Statement of Jamie Fulmer, Director of Public Affairs, Advance 
    America, Cash Advance Centers, Inc.; Representative, Community 
                     Financial Services Association
Introduction
    Thank you for the opportunity to provide information at today's 
hearing. My name is Jamie Fulmer and I am Director of Public Affairs 
for Advance America Cash Advance Centers, Inc., a publicly held payday 
advance company headquartered in South Carolina. I am appearing today 
as the representative of the Community Financial Services Association 
of America (CFSA), of which my company is a founding member.
Background on the Community Financial Services Association
    CFSA was founded in 1999 to promote laws and regulations relating 
to payday advance lending that protect consumers, while preserving 
their access to credit options, and to support and encourage 
responsible payday advance industry practices. Today, CFSA is comprised 
of 164 member companies, representing more than half of all payday 
advance locations nationally.
    All CFSA member companies are required to adhere to a comprehensive 
set of payday lending Best Practices aimed at ensuring consumer 
protection. These Best Practices, a copy of which is attached, include 
requirements that often exceed those contained in state law and ensure 
that our member companies hold themselves to high standards of 
responsible service and help our customers make sound and informed 
financial decisions.
    CFSA periodically audits its members to secure full compliance with 
its mandatory Best Practices. CFSA also continues to enhance these Best 
Practices as our industry evolves and I will highlight several 
important recent changes later in my testimony.
General Background on Payday Lending
    How Payday Advances Work--The payday advance application process is 
simple and transparent. It requires supporting documents, including 
proof of a regular income, a personal checking account and 
identification. Individual companies have their own additional 
underwriting criteria.
    If approved, a borrower reads and signs an agreement containing 
loan terms and disclosures required by the Truth in Lending Act and 
writes a personal check for the amount of the advance, plus a modest 
fee. The lender advances the customer funds immediately and waits to 
negotiate the borrower's personal check until an agreed upon date, 
usually within two to four weeks, when the borrower receives his or her 
next paycheck.
    The average loan is around $300 and the typical fee is $15 per $100 
borrowed. Payday lenders do not require collateral or personal property 
as security (e.g., no car titles) nor do payday loans involve check 
cashing.
    State Regulated--Payday lending is highly regulated at the state 
level. CFSA member companies have taken a constructive leadership role 
in working with state legislators, regulators and other interested 
parties to help develop innovative and effective state statutes and 
regulations for this still-developing industry.
    State requirements include, among other things, limits on the 
amount customers can borrow and the dollar amount of the fees lenders 
can charge. States also generally either prohibit loans from being 
``rolled-over'' (i.e., extended for another term in exchange for the 
payment of another fee) or limit such rollovers to one or two times.
    Size of Payday Advance Industry--There is a very strong consumer 
demand for short-term credit. Our industry serves approximately 19 
million American households each year. Payday lenders extend about $40 
billion annually in short-term, unsecured credit to hard-working, 
middle-class Americans who occasionally experience cash-flow shortfalls 
between paydays. According to analysts at Stephens, Inc., the payday 
lending industry employs more than 50,000 people in about 24,000 
locations and pays its employees throughout the country roughly $2 
billion in wages.
    Payday Advance Customers--Research shows most payday advance 
customers to be from middle-income, educated, working families, with 
more than half earning between $25,000 and $50,000 annually, 58 percent 
having attended college, and one in five having a bachelor's degree.
    Further, payday advance customers are not the ``un-banked,'' as 
every customer is required to have a checking account at a bank or 
credit union plus a job or other steady source of income. Our customers 
turn to payday lenders for a reasonably-priced, well-regulated option 
for meeting unexpected, relatively low dollar, unbudgeted expenses and 
other short-term financial needs.
    When CFSA members make a loan to our customers, we do so only if we 
believe the individual borrower can repay the loan in a timely manner. 
And, to state the obvious, our members can stay in business only if our 
customers do repay their loans.
    Store Locations--Payday lenders are located in population centers 
and areas where customers live, work and shop. These convenient 
locations often include shopping centers with large national anchor 
tenants such as Wal-Mart, Blockbuster, Radio Shack, and/or regional 
grocery store chains.
    Critics have often alleged that the payday lending industry 
inappropriately targets vulnerable populations. During the past few 
years, the industry unfairly has been accused of locating in 
communities with high populations of military personnel, women, the 
elderly, Hispanic Americans, Native Americans, African Americans, 
recent immigrants, young people, social security recipients, veterans, 
poor people and Christian conservatives. A recent Business Week article 
even said payday lenders are targeting affluent neighborhoods.
    The claims that we target any specific group are without factual 
foundation. Payday lenders do not target people on the basis of class 
or specific racial, ethnic or other characteristics. In fact, we 
``target'' the general population no differently than do Home Depot or 
other retail businesses and our lender locations reflect this fact. 
Payday advance stores are simply located near population and commerce 
centers. We do this for the convenience of our customers, who represent 
a broad demographic segment and cannot be fairly grouped based on race, 
sex, religion or similar characteristic.
    Why Customers Choose Payday Advances--Customers use payday advances 
to cover small, unexpected expenses between paydays. They are generally 
ordinary people who have a bill to pay and who seek immediate, short-
term credit to meet this obligation.
    Short-term small loans of less than $1,000 generally are not 
offered by banking institutions. Banks have noted, and studies have 
confirmed, that the cost of offering such short-term loans is quite 
high relative to larger longer-term loans, and banks generally have 
deployed their lending resources in other more profitable ways.
    Ordinary Americans who need such short-term credit therefore 
frequently must choose between a payday advance and often more costly 
alternatives, such as bouncing a check or paying overdraft fees, late 
bill payment penalties and credit card late fees, or asking family 
members for money or pledging personal possessions as collateral. All 
of these alternative forms of credit have associated fees or costs, and 
while payday advances are not always the best option, in many other 
cases consumers determine that a payday loan is in fact the best and 
cheapest credit option available.
    Payday Loan Critics Unfairly Use Misleading ``APR'' Calculations--
In addition to factors such as convenience and privacy, our experience 
is that consumers generally look at the real cost of their available 
credit options and make a rational, informed decision when they choose 
a payday loan. By contrast, critics of our industry tend to disregard 
the true relative costs of short-term credit alternatives and attack 
payday advances because our loan product has a relatively high rate 
when expressed in terms of an APR, or annual percentage rate.
    Overly-simplified APR comparisons in this context tend to be quite 
misleading. Measuring a two-week payday advance at an annual rate is 
like Blockbuster quoting you what it would cost to rent a movie for a 
year's worth of nights, when all you want is to rent it for one night. 
Let me explain how the APR calculation works, or, in our view, does not 
work.
    First, with respect to payday loans--which typically are made on a 
two-week basis for a fee of $15 per $100 borrowed--the APR is 
essentially calculated by making a theoretical assumption that the loan 
will be extended 26 times during a year with a new $15 fee being paid 
each time. Under this approach, the APR is almost 400 percent ($15 
 26 weeks = 390 percent in APR ``interest''). This figure is 
totally misleading and suggests that a borrower normally would be 
paying $390 in interest on a $100 loan. \1\ In reality, however, this 
theoretical APR situation never occurs and generally cannot occur as a 
matter of law. State laws now usually prohibit rollovers entirely, or 
allow only one or two. In real terms, the borrower is paying in most 
cases a fee that equates to an actual interest rate of 15 percent per 
$100 borrowed, which customers clearly understand.
---------------------------------------------------------------------------
    \1\ The term length of a loan likewise skews an APR calculation. 
For example, a $15 fee for a one-week loan = 780 percent APR; a two-
week loan for the same total $15 fee = 380 percent APR; a four-week 
loan with this same set $15 fee = 180 percent APR. Under the extended 
payment plans described below, this APR calculation continues to drop 
dramatically.
---------------------------------------------------------------------------
    Contrary to the impression given by some critics, financial data 
shows that payday lenders are not making excessive profits, and that 
their profits are often lower than those of other financial 
institutions. American Banker reported public companies reported 
profits of 8.5 percent and an article published in the Fordham Journal 
of Corporate & Financial Law supports the position that payday advance 
fees are in line with the high costs of operating payday lending 
businesses. The market for payday loans demonstrates that payday 
lenders' fees also are not out of line with the cost of competing 
short-term credit alternatives when you consider the actual cost of all 
fees and interest charged for these other credit options.
    ``Apples To Oranges'' APR Comparisons--Applicable regulations 
require that the fees charged by traditional payday advance lenders 
must be disclosed as interest and stated on an annualized basis in 
terms of an APR. Unfortunately, these rules do not require that the 
cost of many competing short-term credit options be stated in the same 
way. Instead, depository institutions like banks and credit unions 
typically have to disclose their interest rate as an APR, but do not 
have to include in their APR calculation the various fees they also 
charge for their short-term credit products.
    The practical result of these differing APR calculation 
requirements is that many other lenders charge a fee or both a rate of 
interest and one or more fees for the short-term credit service they 
provide, and yet have a relatively low APR because all their fees are 
not included in the APR computations. ``Apples and oranges'' 
comparisons are then made by critics who unfairly attack payday loans 
because they usually have a higher APR under these flawed calculation 
methods.
    Therefore, we believe that the APR, as currently required to be 
calculated, is generally quite misleading with regard to the real cost 
of payday loans compared to other small, short-term loan products. 
Payday loans often are less costly in real terms when the annualized 
rate for competing products is calculated so as to include all interest 
and associated fees, as FDIC Chairman Sheila Bair and other experts 
have recommended. Using an ``apples to apples'' comparison, payday 
advances often prove to be the better borrower option. Consider these 
typical rate examples for several basic short-term credit alternatives 
when expressed as an APR as opposed to fees: a $100 payday advance with 
$15 fee is 391 percent APR.; a $100 bounced check with $54.87 NSF/
merchant fee is 1,431 percent APR; a $100 credit card balance with $37 
late fee is 965 percent APR; a $100 utility bill with $46.16 late/
reconnect fees is 1,203 percent APR; and a $29 overdraft protection fee 
on $100 is 755 percent.


    Flawed APR Caps--Many critics have called for capping rates at a 36 
percent APR level as has been done with respect to military personnel. 
Some critics now are saying that new loan products being offered by 
credit unions show that loans can be made well below the proposed cap. 
What's the real story? It's pretty simple, but not what the critics 
would have you believe.
    If a rate cap of 36 percent APR is imposed, payday lenders cannot 
provide borrowers with this important short-term credit option. Such a 
cap would mean that in real terms, a lender could only charge about 
$1.38 per $100 borrowed. There clearly is no economically viable way, 
short of subsidization from some source, that a payday lender, or for 
that matter other lenders, can provide short-term small loans at such a 
low rate. Why? Because the actual cost of delivering the loan, not to 
even mention allowing for loan losses and a modest profit, is far 
higher than $1.38 per $100.00.
    For example, Goodwill, a non-profit, tax-exempt charity charges 
customers $9.90 per $100 borrowed, a 252 percent APR, for their 
``GoodMoney'' payday loan. Even the Goodwill could not offer the 
product under a 36 percent annual rate cap.
    The simple economic reality of a 36 percent APR cap is why we can 
no longer offer payday advances to military personnel. We think this is 
unfortunate because the better public policy approach would be to allow 
military service members access to this important short-term credit 
alternative. Military personnel now have fewer choices and often have 
to select a credit option that is significantly more costly in real 
terms than a payday advance.
    We are not alone in our view that borrowers, be they military 
members or other consumers, should not have their short-term credit 
options limited. A staff report from the Federal Reserve Bank of New 
York \2\ notes that ``banning payday loans is not, by itself, going to 
motivate competitors to lower prices or invent new products.'' Research 
confirms that consumers have suffered in states where payday advances 
are no longer available. According to the authors of the Federal 
Reserve Bank of New York staff report, consumers in Georgia and North 
Carolina ``. . . bounced more checks, complained more about lenders and 
debt collectors, and have filed for Chapter 7 bankruptcy at a higher 
rate'' following the elimination of the payday lending industry in 
those two states.
---------------------------------------------------------------------------
    \2\ ``Payday Holiday: How Households Fare after Payday Credit 
Bans'' by Federal Reserve Bank of New York Research Officer Donald P. 
Morgan and Cornell University graduate student Michael R. Strain.
---------------------------------------------------------------------------
    It also is important to understand that many of the new alternative 
products, such as those being offered by credit unions, which are being 
touted by our critics, have various additional requirements and 
restrictions. Moreover, the ``low rates'' being advertised often prove 
to be comparable or higher in real terms when one considers both the 
interest rate and the fees being charged. In fact, if the current flaws 
in the APR calculation requirements were corrected to include both the 
interest rate and all fees, these alternative products could not be 
offered under a 36 percent APR rate cap. Despite what industry critics 
say, a 36 percent annual rate cap is not a reform approach, it is a 
ban.
    Nonetheless, we welcome the further entry of credit unions and 
other financial institutions into the short-term credit advance market, 
and believe competition is good for the consumers we serve. We also 
recognize that some credit union products logically can be offered at 
somewhat lower rates because credit unions do not have to pay taxes, do 
not have to make a profit and may be able to subsidize the costs of 
such products.
    In any case, most of the ``alternatives'' that we have seen are 
completely different products with different terms and different fee 
structures. Many come with a variety of restrictions and complicated 
fee structures. They provide another choice for some consumers, but 
have only a limited reach in the larger market we serve, and in all 
fairness cannot be considered a replacement for payday loans.
CFSA's Payday Lending Best Practices
    Payday lending is a relatively new industry. As it evolves, CFSA 
has listened to the concerns raised about our industry and developed 
solutions to address them. In particular, we are proud that CFSA has 
demonstrated its commitment to responsible lending by adoption of 
payday lending industry Best Practices, beginning in 2000. Updating and 
changing our mandatory Best Practices are part of our ongoing efforts 
to respond to the concerns of policymakers and protect the financial 
well being of our customers. A copy of our current Best Practices is 
attached.
    In the past year, CFSA has made significant changes to the Best 
Practices and I would like to take a few minutes to highlight two of 
them.
    Fee Transparency--CFSA member companies have always met or exceeded 
all applicable regulations in this regard. We have provided clear 
information on our pricing structure in our loan documents and other 
materials as required by applicable laws. Customers generally tell us 
they clearly understand the cost associated with payday advances and 
appreciate the straight-forward and transparent nature of the product.
    Providing consumers with clear, accessible and easy-to-understand 
pricing information is one of the most basic responsibilities of any 
business. We have an obligation to make sure our customers understand 
exactly how much a payday advance will cost before they enter into the 
transaction.
    This year, we took additional steps to ensure that the cost of a 
payday advance is even clearer. CFSA began requiring all member 
companies to present consumers with fees on poster-size displays in all 
stores and on company websites. As a result, members of CFSA 
prominently display the fees and annual percentage rates for at least 
five different loan increments on posters that are at least 18,, 
 22,, in size in all stores and on company websites.
    Now, every time a customer walks into a store they see a large 
poster letting them know both the fee in a dollar amount and expressed 
as an Annual Percentage Rate. Company websites also display the fee and 
APR information. Potential customers are clearly aware of all fees 
before they enter the transaction process.
    CFSA has also established a website to provide consumers with 
information about how to use payday advances responsibly. The site, 
www.knowyourfee.org, includes a user-friendly, interactive map to make 
sure consumers are aware of the maximum fees and rate caps allowed by 
law in individual states.
    Some consumers may review the fee structure of a proposed payday 
loan and conclude that they would be better served with a different 
loan product. Others will decide that a payday advance is their best 
choice. In either case, the important thing is that consumers are fully 
aware of the fees involved, and are able to make an informed decision.
    Extended payment plan--Last year, CFSA's Board of Directors 
unanimously approved an addition to the association's Best Practices 
mandating the establishment of a new Extended Payment Plan (EPP) that 
allows our customers additional time to repay their loans, with no 
additional fee or finance charge of any kind. This EPP practice was 
added to address the concern that borrowers sometimes are unable to 
repay their loans in a timely manner.
    Under this progressive Best Practice, CFSA member-companies make an 
Extended Payment Plan available to all customers without restriction. 
We also are actively supporting efforts to enact such a repayment plan 
requirement into law at the state-level so that it will apply to all 
providers of payday advances. Our efforts include active outreach to 
state legislators, community leaders and other constituent groups. In 
the past year, four states have added an extended payment plan to their 
state law, joining the five states that previously had a mandatory 
extended payment plan.
    Taken together, these initiatives help ensure that CFSA member 
companies hold themselves to a high standard of responsible service and 
assist customers in making sound financial decisions.
CFSA's Financial Literacy Programs
    CFSA and its member companies are committed to helping consumers 
improve their personal finance skills and judgment. CFSA has sponsored 
national public education advertisements on television and in print 
media explaining that payday loans are only intended as a short-term 
option, and are not for continued long-term usage. CFSA encourages 
borrowers to use payday advances responsibly. CFSA also has developed 
community outreach programs aimed at educating consumers on how to 
become financially savvy.
    Among these programs are the CFSA Youth Learn & Save program, which 
teaches high school and college students in Boys and Girls Clubs the 
importance of building a solid financial future; and the CFSA Community 
Volunteer Train-the-Trainer program, which provides volunteers with 
resources needed to teach financial literacy in their community. Based 
on Money Smart, a financial literacy curriculum developed by the 
Federal Deposit Insurance Corporation (FDIC), these programs cover a 
broad range of personal finance topics, including basic banking 
services, consumer credit, budgeting and money management, 
homeownership, and savings and investing.
    To assist member companies in their efforts to support local 
financial literacy programs, CFSA provides Financial Literacy Grants. 
Through this program, CFSA members can obtain a grant in amounts 
ranging from $500 to $2,500. These grants are matched by the member 
company, and are provided to community organizations to launch a CFSA 
financial literacy program.
    To help payday advance customers improve their credit histories, 
CFSA partners with Pay Rent Build Credit (PRBC), a nontraditional 
credit reporting agency designed to help consumers build and 
rehabilitate their credit. PRBC offers payday advance customers the 
opportunity to build an accurate and complete credit history by 
monitoring payments on all the bills they pay.
    On the national level, CFSA partners with organizations to combat 
financial illiteracy around the country. In collaboration with the 
National Conference of Black Mayors, CFSA sponsors Youth Empowerment 
Summits (YES) to host a day-long financial education summit for high 
school and college students. These events are organized in partnership 
with minority institutions such as historically black colleges and 
universities.
    In addition, a partnership with the National Black Caucus of States 
Institute, CFSA supports efforts to educate legislators on economic 
issues impacting the African American community. Last year, CFSA 
sponsored a series of Economic Empowerment Forums to underscore 
inadequacies in the nation's credit reporting system. In doing so, 
legislators examined how credit reporting methodologies negatively 
impact African American consumers' ability to obtain wealth-building 
assets.
    We are deeply committed to increasing financial literacy in the 
communities in which we operate, and would welcome the opportunity to 
explore partnerships and financial literacy programs specific to the 
Native American community. We recognize that the Boys and Girls Clubs 
of America, with whom we have partnered in other areas, are very 
involved in Indian Country. And, we understand that, like the 
historically Black Colleges with whom we have partnered, Tribally 
Controlled Community Colleges offer a rich resource for consumer 
education and skill training. We look forward to expanding our 
involvement in tribal communities throughout Indian Country.
    Conclusion--In closing, we are proud of the service we offer to 
millions of hard-working Americans who deserve access to more financial 
options, not fewer. We employ tens of thousands of people and provide 
them with good wages and benefits such as healthcare and retirement. We 
are active members of the communities where our employees and customers 
live and work. We spread wealth in the community by not only providing 
access to credit, but hiring vendors, renting storefronts and using 
other local services.
    I would be pleased to answer any questions you may have. I have 
attached a copy of our CFSA Best Practices as well as a map showing the 
location of lenders licensed to provide payday and other loan products 
in North Dakota. I ask that my written testimony be accepted into the 
record of this hearing, including these attachments, as well as the 
additional written testimony of Dr. Pat Cirillo who is accompanying me 
at this hearing. Dr. Cirillo is an expert in the field of consumer 
financial services behavior and choices. Thank you for your time and 
interest.













    The Chairman. Mr. Fulmer, thank you very much.
    I thank all of the witnesses for their testimony. I think 
that, as I indicated when I started, I do not intend to, or the 
intention offered here is not to tarnish an industry, it is to 
evaluate whether there are predatory practices and whether 
certain groups and populations are targeted with certain 
practices that we should be concerned about.
    Mr. Fulmer, you heard Ms. DeCoteau talk about borrowing 
$400, and ending up owing $1,400. We hear a lot of stories like 
that. How does that happen? Someone comes in, needs to borrow 
$100 or $200 or $300, ends up owing much, much more than they 
borrowed from the payday lender.
    Mr. Fulmer. Yes, sir. Well, I think with any credit 
product, there is a potential for consumers to mis-use the 
product. Certainly if a customer has an intent to mis-use or 
gets in a situation where they are grasping for straws and try 
to reach out to as many credit products as possible, they can 
get in a situation where they have not used the product 
responsibly.
    Our industry trade association and our company goes to 
great lengths to make sure that customers, first of all, have 
all the information that they need to make a fully-informed 
decision about all applicable aspects of the transaction, and 
then use the product responsibly. Nobody benefits when a 
customer gets into a situation like Ms. DeCoteau described. It 
is bad for the customer, certainly, and it is a very real-world 
situation for them, but it is also bad for the lenders. We are 
fully aware that there are consumers, like with any other 
credit product, that do mis-use it. But we believe that our 
trade association's best practices address many of those 
issues.
    The Chairman. Your trade association's best practices cover 
60 percent of the industry?
    Mr. Fulmer. Yes.
    The Chairman. Do you have some assessment of what the other 
40 percent are doing?
    Mr. Fulmer. Well, the other 40 percent are certainly 
required to adhere to the individual State laws that we operate 
in. And so what we have done at the State level is worked with 
State legislatures to try to encourage them to adopt many of 
the practices that we have in our best practices into State 
law. So that would be the solution that we believe would be 
best for consumers.
    The Chairman. Let me ask, as you know, there is a 
perception of payday lending that it is necessary in some 
cases, but really taking advantage of a lot of people. Let me 
give you some examples. Critics of your industry, the Center 
for Responsible Lending, Consumer Federation of America, 
National Consumer Law Center, and so on. The allegations that 
are made are that the industry seeks out customers with little 
access to cash, with an inability to pay the amount in a 
typical two-week loan, which then rolls over, and for example, 
a 28-day loan, a relatively small loan, you end up with a very, 
very large effective annual percentage rate, a cost that is 
applied to that loan.
    Do you think that these organizations, as they view your 
industry, are viewing the 40 percent or viewing a portion of 
the 40 percent that are predatory? Why do you think this 
perception exists? Is it real, or is it just a perception that 
is wrong?
    Mr. Fulmer. Senator Dorgan, I can't answer that 
specifically. I do know that folks like the Center for 
Responsible Lending, whose sole purpose as it relates to the 
payday lending product are to see its elimination, are focused 
on providing information that they think will present this 
product in the worst light. We know from our conversations with 
customers and the polling we do internally to determine 
customer satisfaction that customers are overwhelmingly 
satisfied with the product that we offer and also the service 
that we provide.
    We understand that there can be situations where customers 
mis-use this product. But the average customer who uses our 
product uses it between seven and eight times a year. They are 
typically in the product as a whole, during the course of their 
experience with us, on average about two years.
    So we believe that the product we offer compares very 
favorably in price to many of the other alternatives and also 
in usage. We think the things that we have done to prevent 
repetitive use and excessive use of our product are somewhat 
unique to financial services products. I talked about the seven 
to eight times they use our product on average in a year. If a 
consumer writes a bad check, they are typically going to write 
on average about 13 bad checks in a year. So we believe we 
present a financial option to consumers, and that is why we go 
to great lengths to make sure they have all the information.
    I would also finally point out that the term ``rollover'' 
that you mentioned is only an allowable transaction in, I 
believe, 11 States across the Country. There are 35 States now 
that have specific enabling legislation. So that is only a 
fraction of the States that allow this.
    What we have seen at the State level is that States have 
been moving toward the implementation of things such as a data 
base that can track the loan limit, the number of loans that 
customers have outstanding at any one time. They have adopted 
reasonable cooling-off periods of a day or the next business 
day so that if a customer has to take out a payday advance and 
they would like to have another payday transaction, first of 
all, they have to pay off that transaction in full. Then second 
of all, they would have to wait at least until the next 
business day to take out that transaction, to prevent them from 
taking out a transaction that was not based on a rational 
decision.
    The Chairman. I am not very familiar with the industry, as 
a matter of fact. But it seems to me if you have the same 
people coming seven or eight times in a year for their 
financial needs to a payday lending institution, borrowing 
$100, paying a $20 fee, seven or eight times a year, that 
particular class of population are ending up paying 400 or 500 
percent interest on their money. If you are borrowing $100 for 
14 days and paying $20 for it, and you do that repeatedly over 
the year, that particular group of borrowers are ending up 
paying the highest interest rates in the Country, by far. And 
it seems to me they are the least able people to be doing that.
    Mr. Fulmer. Senator, the only way you would end up paying 
that 400 percent APR is if you took out a $100 the first day of 
the year and you took out that same loan, that same $100, every 
two weeks for an entire year. That is how you get to a 391 
percent APR. In fact, many of the States that have a cooling-
off period, it is actually physically impossible, with the 
cooling-off period, to get that high. And that is certainly not 
representative of the normal use of our product. That is a very 
small percentage of our customers who use the product 
excessively like that.
    So we understand that there are situations where customers 
get into a situation where they are in over their heads. That 
is why we have adopted many of the practices that we have 
adopted, and that is why we have advocated their adoption at 
the State level.
    The Chairman. But if you borrow $100 for a year and it 
costs you $20, that is 20 percent, right? A 20 percent APR for 
the year?
    Mr. Fulmer. Right.
    The Chairman. If you borrow $100 and pay 20 percent for two 
weeks, that is a vastly different interest rate.
    Let me ask Mr. Brokke, you heard the testimony. You say 
that you are president of a credit union, you have put together 
some impressive programs to reach out to this group of 
Americans. You exist and live and work in an area where there 
are payday lenders near an Indian reservation in Devils Lake, 
North Dakota.
    Tell me, you of course are a competitor in a way of payday 
lending, is that correct? Do you view yourself as a competitor 
of the payday lenders?
    Mr. Brokke. Probably more so an alternative than a 
competitor.
    The Chairman. Your assessment of what I have just described 
with respect to interest rates, what kind of charge or interest 
rate must you impose in order to offset the risk and in order 
to involve yourself with responsible lending to those folks at 
the lower end of the income level?
    Mr. Brokke. Mr. Chairman, of course, loan administration 
costs are quite expensive. It takes a fair amount of that 
interest rate to service the loan, to put it on the books, to 
meet disclosure requirements. There are a lot of costs 
involved.
    Our interest rates are all based on a simple interest rate, 
365 day basis. Of course, when you add the fees in there, if 
there should be any, the rate would increase considerably.
    The Chairman. Mr. Brokke, let's say if I wanted to come to 
your credit union and borrow $250, because I had a financial 
need, and I don't have a lot of money. I have a job and I have 
a pay stub, and I have a checkbook that I can show you. But, I 
need $250 for something that is urgent and I need to borrow the 
money. I come to your credit union. Are you interested in 
dealing with me?
    Mr. Brokke. Yes, certainly, we are.
    The Chairman. All right. Let me ask you this. I don't go to 
your credit union. I go to a bank in Devils Lake, I go to a 
bank in Denver or Salt Lake City. Is the bank in most cases, 
based on your knowledge of banking, are they going to be very 
interested in loaning me $250?
    Mr. Brokke. I really couldn't speak to that. My whole 
career has been with the credit union.
    The Chairman. Ms. Gambrell, can you speak to that? I will 
tell you why I ask the question. My understanding is, there are 
a whole lot of banks in this Country. You show up and want to 
get a $225 loan. They are going to say, take a hike, we are not 
very interested in processing a $225 loan. The cost of 
processing exceeds, et cetera, and we are just not very 
interested in dealing with you. Is that the case?
    Ms. Gambrell. I don't work at a regulatory agency any 
longer, but I will give you two observations. One, I think this 
is one of the reasons why the Native Community Development 
Financial Institutions play such an important role, because 
they are able to offer affordable, short-term, small dollar 
loans through a number of products and services that they 
provide to their community members.
    The Chairman. And I like that program, that is a good 
program. But I am asking a different question. I am asking a 
question about whether that program is necessary, because you 
can't go, in most cases, to most banks in this Country and say, 
you know, I am a customer here, I am going to be a new 
customer, and I need a loan. They say, how big, well, $225, 
what are they going to do to you?
    Ms. Gambrell. Well, Mr. Chairman, like Mr. Brokke, we serve 
as an alternative. We serve as a good alternative. I think what 
you find with large institutions is that many will say that the 
cost of that loan is too small for them to put that kind of 
effort in.
    However, I will say that there have been some recent 
efforts by some of the bank regulatory agencies, including the 
Federal Deposit Insurance Corporation, that has a pilot 
underway now, looking at affordable, short-term, small dollar 
loans. Because I think there is recognition that the banks need 
to do more in this area, and that there are some options that 
they need to explore in providing those kinds of loan products, 
especially to low and moderate income communities.
    The Chairman. Ms. DeCoteau?
    Ms. DeCoteau. I just want to say that I can speak to not 
being able to get a personal loan at a local bank. I have had 
that experience many times on the reservation for a number of 
reasons, loans ranging from maybe $300 to $700. I was never 
granted one, even though I had a good income, my husband had a 
good income, we were masters degree graduates. I didn't quite 
get it at the time, but this is really opening my eyes, too.
    I think what this speaks to is the need for alternatives, 
for low interest alternatives that will help rebuild credit, 
that will keep people--I quit going to those banks, by the way. 
I think people do. But my alternative was that I did have an 
income and I did just finally save enough money. But people who 
don't have the masters degrees that we had don't always have 
that option, they just have to go find another source. So what 
we need to do is create those alternative sources.
    The Chairman. Ms. DeCoteau, you raised another question 
this morning that I think we will look into. I don't know the 
answer to this, but you suggested that if someone has an 
address on an Indian reservation or a zip code on an Indian 
reservation, that there are some financial institutions that 
decide you are in a different category with regard to interest 
rates. Is that what you were suggesting?
    Ms. DeCoteau. Absolutely. And this came right from the 
mouth of the U.S. Attorney, and I am sure he would tell anybody 
that story. He has said to me, in fact, please tell my story.
    The Chairman. Is that in writing in your testimony?
    Ms. DeCoteau. It is in our written testimony.
    I might also point out that the Turtle Mountain State Bank 
just opened on our reservation.
    The Chairman. That is Indian-owned?
    Ms. DeCoteau. That is Indian-owned, and one of the 
principals of that bank, Mr. Ken Davis, was quoted in a 
newspaper story saying that too often, Native Americans can't 
get bank loans off the reservation . That was part of the 
incentive for opening the bank. He said that if it is for a 
business, off-reservation banks want to loan that money off-
reservation, they want to see you start that business off the 
reservation, not on the reservation. So they are looking after 
their own community financial interests.
    The Chairman. Mr. Allen, the Congress took action dealing 
with the payday lending that the Congress believed was 
targeting military bases, soldiers on military bases. Congress 
saw a number of reports that suggested that was the case. Mr. 
Fulmer, of course, indicated his industry objects to and does 
not like that legislation. Nonetheless, it is now the law.
    Let me ask your perspective. You represent a national 
organization. Your perspective of payday lending, and its 
relationship to Indian reservations. The origin of this hearing 
came about as a result of Senator Domenici asking us to take a 
look at what was happening surrounding Indian reservations, 
particularly in New Mexico, and especially Gallup, New Mexico. 
He observed such a large number of payday lenders and asked us 
to look into it. So we began to do that, and that is the origin 
of deciding to do a hearing.
    Give me your perspective of payday lending generally with 
respect to the targeting of Indian reservations and your 
analysis of the determination of whether this is difficult for 
reservations, or whether it is an asset. Some would say it is 
an asset. If you don't have payday lenders, those who cannot 
get funding from any other area are going to lose a source of 
funding. Others say that it puts people in a pretty difficult 
situation, paying these rates and rollovers and so on, they get 
stuck in a web of credit difficulties. Give me your perspective 
of that.
    Mr. Allen. Thank you, Mr. Chairman. First of all, there is 
a need, there is no question that throughout our communities, 
we have a sector of our tribal citizens who need these very 
short-term loans, just to deal with day to day issues. There is 
a whole, large variety of experiences and reasons that they 
need it. There is a need to provide some sort of guidelines or 
controls, similar to the State guidelines that Mr. Fulmer had 
addressed that are in many States, so that it prevents 
spiraling situations where a tribe, an Indian trial citizen 
borrows money and then all of a sudden ends up with an 
exorbitant amount of money that they owe, just for a simple, 
little day to day expense or crisis.
    We believe that there is a need, and there is a need on the 
reservation. Without a doubt, the majority of these non-banking 
lenders, particularly, are around the reservation, not on the 
reservation. We believe there is a need to develop these kinds 
of alternatives on the reservation. That is the tribal 
jurisdiction issue that we referenced.
    It does need to be a balance in terms of whether it is 
interest rates or whether it is fees, in order to provide the 
economic incentive for the institution to do business on a 
reservation. So it is a balance of protecting the citizen and 
of providing the right kind of incentive for the industry.
    The military example, we are not sure, did it work or not 
work. We believe that we should examine whether or not it did 
cause more problems than the problems that it was trying to 
solve. So our agenda really is that competition is going to 
improve the situation for our tribal citizens, and as Ms. 
Gambrell had addressed, the fiscal literacy issue is a big 
ticket item in conjunction with the service. So we need the 
service in our communities.
    The alternative that Mr. Brokke addressed, I don't know 
exactly if that serves it well or not. Credit unions usually 
need liens against some asset, whether it is a car or house or 
whatever it might be. So whether or not they have an 
alternative program that serves it or not, I don't know. We 
would certainly want to explore whether or not they can come 
onto the reservation or near the reservation and become an 
alternative and to improve the competitiveness that still 
protects the interest of the tribal citizens.
    The issue for us is, we need to examine this real closely 
before the Congress decides on establishing any laws and/or 
regulations that would address this issue. I can assure you 
there is a need, there is a need for this service, there is a 
need for the parameters of controlling the industry so that we 
can move this agenda forward.
    Our perspective, as a national organization, we advocate on 
behalf of the tribes' authority as a government. So we would 
like to see more on the reservation, we would like to see those 
kinds of controls authorized for the tribal government. But we 
also want to make sure that we increase the competition and the 
protection for the tribal citizens who get themselves into 
these precarious situations.
    The Chairman. Mr. Barkley, you indicate that your program 
on your reservation that incentivizes savings and provides a 
match, I think you said it was a four to one or five to one 
match.
    Mr. Barkley. Three to one and a five to one. There are two 
different programs.
    The Chairman. Right. As a result, you got involved in that 
program, and you now have a three-bedroom home, two bathrooms, 
a deck, two-car garage, fenced yard, one acre of trust land and 
a view of the Blue Mountains, is that correct?
    Mr. Barkley. Yes, sir.
    The Chairman. That is a pretty good deal, isn't it?
    Mr. Barkley. It doesn't get better.
    The Chairman. Congratulations to you.
    Let me ask you, how does the tribe fund the match? Three to 
one, five to one? Tell me the mechanism of that funding.
    Mr. Barkley. The tribes are able to help leverage some of 
those dollars in helping with this program. We also use some 
other resources to help with this program. And we bring in 
local experts, CPAs and bank lenders in to help conduct those 
classes.
    The Chairman. In many ways, that relates to the literacy 
issues Ms. Gambrell is talking about and Mr. Allen was just 
talking about, and Ms. DeCoteau. It sounds to me like a really 
interesting program. The key to it, of course, is to have the 
funding, to find the funding stream to be able to match in 
order to incentivize people to decide they wish to begin this 
savings process. But what it has done for you is quite 
extraordinary.
    Mr. Barkley. Just one example, and probably one of the more 
positive attributes of that program that I see is that there 
are a lot of younger people who are taking advantage of this 
service, particularly my own son and daughter, who are going 
through this program. It is going to benefit them.
    The Chairman. Mr. Fulmer, let me try to understand once 
again. My own sense it that here is some predatory lending 
going on. You represent an organization that develops best 
practices, perhaps enforces best practices or attempts to 
enforce them, with 60 percent of an industry. The other 40 
percent is not part of your organization. But let's assume for 
the moment that a small percentage of it, 10 percent or 5 
percent or the remaining 40 percent are predators, and there 
are some. What do we do about that? Because you don't want 
that, if your industry is an industry that you feel is 
necessary for people to access some short-term loans that could 
not otherwise access them in other circumstances, you I assume 
want to try to shut down predatory practices. What are you 
doing to shut it down and how extensive do you think those 
practices are?
    Mr. Fulmer. Senator, I agree with you, certainly this 
industry is not unique, there are some bad apples in this 
industry. It is difficult for those of us who are responsible 
lenders to take the heat for those that are not.
    Being regulated in the 35 States that we operate in, even 
though they may not be members of the Association and may not 
adhere to the industry trade association's best practices, they 
still operate under State law, they are still regularly audited 
by the State agency's oversight, who have responsibility for 
oversight. They still can have enforcement actions taken 
against them if consumers have felt like they have been abused, 
so that they do complain to the State agencies.
    I think many of the products we talked about here today on 
the panel that are competitive product of the payday lending 
product are all great products. I think there needs to be more 
products in the competitive marketplace, not fewer. That is 
what the independent research speaks to. We think that our 
customer who uses our product is a price-savvy customer. If 
there was an alternative that was better for them in the 
marketplace, that was less expensive, and met their 
requirements at that given time, they would be going to that 
provider.
    So we think that it is important to have as many options as 
possible, as many regulated options as possible and have those 
options enforced by the relative States that we operate in. We 
think that is ultimately good for consumers and it is also good 
for the providers of that product.
    The Chairman. One point that has been raised that I want to 
address for a moment is this issue of refund anticipation 
loans. I think that there certainly is some indication that 
there is a push to get people come in, do your income tax and 
pay a pretty substantial amount for a refund anticipation loan. 
That comes back in some ways to this issue of financial 
information and awareness and financial education again. I 
think the high number of people who are signing up for these 
and therefore losing a part, a significant part of their tax 
refund, they are doing it because they need the cash now, they 
need money. So they sign up, but the result is they sacrifice, 
in my judgment, too high a payment for that service. We are 
going to take a look at that as well. I suspect that there is a 
substantial amount of selling that is going on in connection 
with the preparation of the tax return.
    This Committee wanted today to just have an open discussion 
about payday loans and payday lending and predatory lending, 
and try to get a sense of what is happening out there. We have 
had some discussions about what is happening around military 
bases. But we have not had that similar discussion with respect 
to Indian reservations. This is just a broad brush and a first 
opportunity to take a look at what is happening.
    I appreciate very much information that has been brought to 
us by you. What we would like to do is keep the hearing record 
open for 14 days, and ask that if there are those who wish to 
submit information to complete this hearing record, they do so 
within the 14-day period. Then Senator Murkowski, I and other 
Committee members will be reviewing this. I expect this issue, 
to the extent that we would move to do something on this issue, 
and that is not certain, we want to try to understand what we 
are dealing with, but I expect this is one of those issues we 
will continue to look at in the remainder of this Congress and 
then moving into the next Congress as well.
    I want to thank all of the witnesses for their preparation 
to be here this morning. Some of you have traveled some long 
distance to be here, and you have described a number of 
different approaches and programs and efforts to deal with 
these issues. Mr. Fulmer, thank you for telling us about your 
industry.
    As I indicated when I started, I really think there is some 
predatory lending going on. I think it is pretty hard to drive 
down some streets, and I have driven down those streets in some 
American cities, and take a look at those big old signs in 
bright red and yellow and blue that say, get in here and get 
yourself some quick cash. Pretty hard to take a look at that 
and not believe there are some people trying to suck money out 
of some people's pocketbooks in an untoward way.
    On the other hand, as I indicated when I started this, 
there will always be a place for short-term lending, provided 
it is properly regulated and done by people who are 
responsible. Ms. DeCoteau, did you have a concluding remark?
    Ms. DeCoteau. I actually do. I am a little bit tardy in my 
response, but I just wanted to point out that the problem is 
with the product design, in that while most people do use those 
products responsibly, but 90 percent of the revenue generated 
in the payday lending industry comes from borrowers who are 
trapped in a cycle of payday loans and they take five or more 
loans per year. So while 60 percent of the industry may say 
they are acting responsibly, they are offering a loan product 
that obviously vulnerable people can't handle.
    So they need to be redesigned.
    The Chairman. That is the very point that Mr. Fulmer was 
making, that in fact he was citing that as an asset, he was 
citing as an asset the fact that people come back six or seven 
times a year. I am not clear that is an asset, it seems to me, 
I have always thought of payday lending as a circumstance where 
somebody, on a rare occasion, needs some short-term cash. My 
understanding is that only about 10 percent of the lending at 
payday lenders is to someone who uses it once a year.
    Mr. Allen. Senator, if I might. One of the problems is, a 
tribal citizen may not just go back to the same lender, they 
may go to multiple lenders, and they don't know about the 
practice. So if there is a State condition or law that requires 
a clearinghouse, a repository, so if a person comes in for a 
loan, the loaner can find out, based on their data system, that 
this person now has a half a dozen more from other lenders, 
that is a problem. So it prevents them from getting into those 
kind of multiple borrowing situations, where one lender doesn't 
know what another lender is doing.
    The Chairman. I want to ask a final question here. Wouldn't 
it be better for someone who is using, on a more routine basis, 
five, six, eight times a year, a payday lending institution 
which is charging $20 every time they borrow $100, or $15 every 
time they borrow $100, wouldn't it be better for that 
particular borrower to be accessing some other kind of lending 
institution at a much, much lower cost?
    Mr. Fulmer. Yes, Senator Dorgan, it may very well be better 
for that consumer. I think that is part of what we try to do, 
is encourage responsible use of our product. If consumers are 
needing a payday loan for a longer term financial solution, the 
payday loan may not be the best alternative for them. It is the 
same argument that you wouldn't take a cab across country, but 
you might take it across town.
    I don't want to leave you with the impression that I think 
a customer who uses our product five or seven or eight times is 
an asset for anybody. I think what I was trying to point out is 
that we want to be available for that customer when they have a 
need. It doesn't always fit into a cookie cutter approach. It 
may be that between seven and eight times a year, they may have 
a short-term financial need that they want to take care of very 
quickly, they want to keep it out in front of them, they don't 
want to use their credit card, they don't want to turn to one 
of these other alternatives. We believe more options, not 
fewer, is better for the consumer. We think that certainly our 
option is one that should be considered for consumers who have 
a short-term financial need, and they ought to carefully 
evaluate the cost associated with our product and then make the 
decision that they think is best for them and their families.
    The Chairman. And our interest is, are certain kinds of 
people being targeted, targeted in a way that entices them to 
come in and pay higher rates than they otherwise would if they 
were qualified and capable of using other kinds of banking 
enterprises or lending alternatives. We will look at all of 
these issues.
    Ms. Gambrell?
    Ms. Gambrell. Chairman Dorgan, if I may, just as a last 
remark, I think certainly for us, from the Treasury Department, 
the CDFI Fund works with Native CDFIs that in fact have been 
very aggressive in reaching out to Indian populations to make 
sure that folks who are in vulnerable situations are not 
further preyed upon by offering those products that are 
affordable, short-term, small dollar loans. So I think that is 
an important point to continue to focus on, is the work that 
they do.
    If I may just go back and respond to something you had 
asked me earlier about the banks and whether or not they can 
provide those kind of short-term dollar loans, there is a 
bigger issue here. I think in 2001, the CDFI Fund did a study 
that looked at the 17 barriers to Indian Country in particular. 
One of the primary obstacles to actually access to credit, 
especially in Indian Country, is that there was a lack of 
traditional financial institutions even in or near those 
locales. So I think that is an even larger issue in terms of 
asking what role financial institutions can and should play in 
providing those services.
    The Chairman. You are right, and I made that point in my 
opening statement, that many Native Americans living on 
reservations do not live anywhere near a lending institution. 
But it is also the case that many lending institutions, 
particularly many banks, are not very interested in a customer 
that wants to borrow $300. They don't want to deal with it. The 
processing costs of the loan, in many cases, would have them 
saying, you know what, you will have to go elsewhere. In fact, 
the credit unions, by reputation, are supposed to be 
institutions of small borrowers and small savers. That is the 
origin of the credit union movement, in my judgment.
    I think all of these things together represent a whole 
series of questions about lending, about access to financial 
services, about education for consumers and about the issue of, 
is there predatory lending going on and if so, what do we do 
about that.
    I appreciate again the testimony of all of you. This 
hearing is adjourned.
    [Whereupon, at 11 a.m., the Committee was adjourned.]
                            A P P E N D I X

   Prepared Statement of Patricia Cirillo, Ph.D., President, Cypress 
                             Research Group
Introduction
    Good morning. My name is Patricia Cirillo, and I am president of 
Cypress Research Group, a statistical research consulting firm in 
Shaker Heights, Ohio.
    Thank you for the opportunity to address the issue of payday 
lending, and specifically, the scientific merit of a recent report by 
the First Nations Development Institute entitled ``Borrowing Trouble: 
Predatory Lending in Native American Communities.''
    I have been a statistical analyst for 20 years, and I work in 
numerous consumer and business-to-business industries. My areas of 
focus include public education, arts and culture, and financial 
services.
    I have obtained a detailed understanding of the ``payday'' borrower 
through my and my colleagues' research during the past four years, 
where my work has included interviews with over 10,000 payday 
borrowers.
    While there are now numerous studies which look at aggregate data 
of the payday loan industry (e.g., transaction data; Census Bureau 
demographic statistics; store location data) my work is distinctive in 
that I study the users of payday loans directly. The only other 
researcher I know of doing primary data collection of the payday loan 
market is Dr. Gregory Ellihausen at George Washington University.
    In sum, we gain our views about the industry via the opinions, 
understandings, and actions of payday borrowers themselves. We are 
agnostic regarding whether or not payday loans are ``good'' or ``bad.'' 
Instead we rely on the wisdom of the consumer, collectively known as 
the ``market,'' to teach us how the industry should be regulated and 
how the industry can best serve this unique set of consumers.
    Our understanding of the payday loan customer is fairly extensive. 
He or she is typically lower-middle income (more than half have annual 
incomes between $25,000 and $50,000), 35-40 years of age, employed, 
banked, with children in the household. Payday borrowers own their 
homes at half the level of the average American (one-third compared to 
two-thirds). They are educated at roughly the same levels of the 
general U.S. adult population.
    Payday borrowers are extremely clear and consistent about why they 
obtain a payday loan: they needed cash for some unexpected expense, and 
a payday loan was their best (least expensive) option at the time. And 
this very, very important understanding is almost always left out of 
the debate over payday lending: borrowers choose a payday loan because 
it is their cheapest, and sometimes also their most convenient option. 
Many (about half) of the payday borrowers could opt (and sometimes they 
do if it is the less expensive option) to allow one or more checks to 
``bounce'' that month, thereby invoking overdraft protection.
    Alternatively, most have the option of delaying the payment of 
routine bills that month, thereby incurring the late fees associated 
with that choice, or risking damage to their credit rating.
    Another common choice is credit card cash advances, although only 
about one in five payday borrowers have available credit on their 
credit cards and many express a dislike for using their credit cards at 
all because of the potential for revolving debt, which can grow far 
larger than the debt associated with a $300-$400 payday loan. A fourth 
option is obtaining a payday loan over the Internet, which is typically 
more costly than a storefront payday loan.
Faulty Data Points
    With specific regard to the report on predatory lending in Native 
American communities, let me begin by first offering this summary of 
the First Nations study:
    The First Nations paper purports to analyze information regarding 
what it calls the practice of ``predatory lending'' in Native American 
communities throughout the U.S. by grouping five different lending 
products under the category of ``predatory'': tax refund loans, payday 
loans, pawn shop transactions, car title loans, and mortgage loans with 
high rates/fees.
    In reaching its sweeping conclusions, the First Nations paper 
relies on two faulty data points rather than a broad, in-depth study 
that the broader scientific community would find acceptable:

   First, the paper relies on informal, survey data drawn from 
        attendees at a May 2007 conference of the National American 
        Indian Housing Council. Housing officials were asked their 
        opinions about types of predatory lending in their communities.

   Second, the paper relies on analysis from a research paper 
        \1\ which examined the relationship between payday lending 
        store locations and Christian political power. This paper 
        references misleading map data of payday lending locations to 
        American Indian Land which I will discuss in more detail 
        shortly.
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    \1\ Graves & Peterson, pending 2008.

Scientific Shortcomings
    These two data points, as offered by the First Nation's report, 
present serious scientific shortcomings which undermine the credibility 
of the study and definitely call into question the conclusions that are 
drawn, for the following reasons:

   First, an opinion survey of attendees at a housing 
        conference lacks the specificity needed to properly evaluate 
        the impact of payday lending in a community. Payday loans have 
        little to do with the housing market. The opinion survey 
        assembled anecdotal hearsay from housing representatives 
        unlikely to have experience with payday lending markets (i.e., 
        providers and consumers).

   Second, the study's premise that store location is a sole 
        indication of ``targeting'' ethnic minorities is faulty at its 
        very core. All retail establishments locate where their 
        potential customers are. The payday loan industry is no 
        different--with lenders locating in population centers, 
        convenient locations where customers live, work and shop. Race 
        and ethnicity (and of course, religion) are irrelevant. The 
        need to borrow small amounts of cash and the ability to pay it 
        back (which lenders need in order to survive) are associated 
        with one and only one consumer indicator: economic status. 
        Those with too low incomes cannot typically pay back a loan, 
        and are therefore too risky for any lender. Those with higher-
        than-average incomes are likely to have access to emergency 
        cash via other, more ``mass produced'' sources of credit (e.g., 
        credit cards), so locating near them is unlikely to produce 
        enough volume to keep the light bill paid. Targeting any racial 
        or ethnic group provides absolutely no business value to payday 
        lenders. Any relationship of store location and racial/ethnic 
        composition of customers is simply coincident; economic status 
        matters (need for the loan and ability to repay it); race/
        ethnicity does not.

   Third, the report itself does not support its own 
        conclusions that payday loan stores are concentrated near 
        American Indian land. The maps in the report demonstrate 
        conclusively that the allegations of ``locating near Native 
        American lands'' are without foundation in fact. The report 
        itself states, ``These maps do not provide visual evidence that 
        payday lenders have concentrated their services near Indian 
        lands . . .'' (page 6). In fact, the visual evidence in this 
        report confirms that payday lenders are located in population 
        centers convenient to where customers live, work and shop.

   Fourth, if the payday loan industry were ``targeting'' 
        American Indians, store location maps would look very different 
        than what is shown in this report (see below) and the 
        industry's marketing, advertising, and product design would 
        support the ``targeting'' of Native Americans. There is 
        absolutely no support, at all, for this allegation.

    Below appears a sample map of Montana copied from the First Nations 
report. It shows very clearly that payday lenders locate, with few 
exceptions, near population centers and not near American Indian land.


Factual Errors
    Mr. Chairman, in addition to the faulty data points included in the 
report, the paper also includes several false factual assertions about 
the payday lending service and the customers who use it. These factual 
errors further call into question the reliability of the conclusions 
drawn by the First Nations study. Those factual errors include the 
following:

   Report myth #1: Payday lending customers are not part of the 
        mainstream financial services.

        Fact: 100 percent of payday lending customers have a checking 
        account with a bank or credit union. Each customer must have a 
        regular paycheck or other form of steady income. These are the 
        basic requirements for obtaining a payday advance. It is an 
        attractive notion to assume that payday lenders must be 
        outrageously profitable--why else would there be so many 
        concentrated in certain areas? In that same light, it is 
        tempting to conclude that payday lenders must be duping their 
        customers--why else would consumers agree to such high fees?

        The answers to both of these questions can easily be explained 
        simply by listening to the consumers of these loans 
        themselves--the cost of both bounced checks and late bill fees 
        has tripled in the past ten years. Consumers who previously 
        relied on those options to get through a financially stretched 
        month now sometimes prefer a different option--payday loans--
        simply because, for that particular month, they were the best 
        choice.

        Payday loan stores are very small stores--on average they 
        employ only 3-4 people. Customers want privacy and quick 
        service; they prefer a small private setting to obtain a payday 
        loan; hence, this is exactly how payday loan stores are 
        structured and organized. The market prefers and therefore 
        supports a ``cluster'' of small, separate stores, as opposed to 
        a single, large, bustling store lined with customers. This is 
        more the business model for the opt-referenced comparison 
        industry of fast food chains. It is estimated that 
        approximately 5 percent of U.S. adults have obtained a payday 
        loan, while a good guess of the number of U.S. adults who have 
        eaten in a fast food restaurant is closer to 100 percent.

   Report myth #2: Payday loans are predatory.

        Fact: The term ``predatory lending'' is often used incorrectly 
        to describe sub-prime financial services, including payday 
        advances. The definition of ``predatory lending'' is unclear, 
        but even when looking at the range of definitions available, 
        payday loans do not meet the criteria of ``predatory lending.'' 
        ``Defining and Detecting Predatory Lending,'' a study by Donald 
        P. Morgan, Research Officer, Federal Reserve Bank of New York, 
        concludes that payday loans do not fit the definition of 
        predatory because they are not a ``welfare reducing'' form of 
        credit. To the contrary, the author suggests that payday 
        lenders enhance the welfare of households by increasing the 
        supply of credit.

   Report myth #3: Payday loans compound rapidly.

        Fact: Payday loans do not compound rapidly. Payday advances are 
        small, unsecured, short-term loans, usually due on the 
        borrower's next payday. The average loan is $300 and the 
        typical fee is $15 per $100 borrowed. In fact, payday loans do 
        not compound at all. Under CFSA's Best Practices, any customer 
        who cannot payback their loan when due has the option of 
        entering into an extended payment plan, allowing them to repay 
        the loan over a period of additional weeks. This option is 
        provided to customers for any reason and at no additional cost. 
        Numerous accounting and financial studies have shown that, 
        factoring in all of the costs associated with short-term, 
        unsecured, small-value lending, payday lenders' profits are 
        similar to other small-scale retail establishments. Payday 
        lenders which are publicly traded show profit levels right ``in 
        the middle'' of more mainstream retail financial institutions. 
        In a nutshell, providing such loans is expensive; 
        unfortunately, administering a $350 loan costs about the same 
        as a $10,000 loan in terms of man-hours. Proportionately, the 
        fees associated with payday lending then seem very high.

        The issue of high rates is the most common criticism of the 
        payday loan product in its current form. Expressing the cost of 
        a payday loan in A.P.R. is inflammatory and a useful tool for 
        critics of the industry; even users of payday loans cringe when 
        they are reminded of the A.P.R. of a payday loan they obtained 
        and were perfectly happy about. What is more important, I 
        believe, is to compare the relative costs of a payday loan to 
        the particular options available to consumers; there is no 
        doubt that, in many cases, a payday loan is the most cost 
        effective alternative (assuming the cash is being obtained for 
        a non-frivolous reason, which it almost always is).

        A triple-digit A.P.R. elicits a strong negative reaction from 
        everyone, and rightly so. But the cost of payday loans 
        expressed as an A.P.R. simply is not reflective of consumers' 
        experiences. Very, very, very few payday borrowers obtain a 
        payday loan every two weeks for an entire year, which is what 
        is necessary for a loan to have, in effect, a 400 percent 
        interest rate. While it is indeed typical for payday borrowers 
        to obtain several loans (7-9) in a year, these loans are mostly 
        ``spread out'' over the year, with some clustering of 2-3 loans 
        within a short period, suggesting that the A.P.R. is not a good 
        indicator of the cost of the loans. Alternatively, consumers 
        use the ``$ per $100'' rate in order to make their purchase 
        decisions. Their other options are not typically expressed in 
        A.P.R. (bounced check fees are not, nor are late bill fees); 
        therefore, A.P.R. does not help the consumer make an apples-to-
        apples comparison in the case of very short-term loans.

   Report myth #4: Tribal credit unions can offer cheaper 
        alternatives to payday loans.

        Fact: The report calls on Indian tribes to offer financial 
        literacy programs and develop payday lending alternatives, both 
        consumer-friendly suggestions. We caution, however, that the 
        payday loan products now offered by banks and credit unions 
        differ a great deal from payday loans offered by CFSA members. 
        Not only do banks and credit unions have stricter requirements 
        on who qualifies for payday loan alternatives (typically only 
        existing members of credit unions, or bank customers with 
        direct deposit who have strong credit scores, are offered 
        payday loans), they do not take on the default risk as do the 
        industry's payday lenders.

Summary
    Mr. Chairman, consumers benefit when competition is alive and well 
in markets. Competition encourages innovation to improve services, 
lower cost, and increase access to consumers. The storefront payday 
loan was, in itself, an innovation a couple of decades ago, in response 
to a real need in the community. Eliminating access to that choice will 
not improve the consumers' situation; limiting choice suppresses 
innovation by discouraging competition. Eliminating access will do 
nothing to impact demand; my studies and others have shown that when 
storefront lending is eliminated as a choice for consumers, they simply 
``substitute'' another product: bounced checks increase; late bill 
payments increase; Internet payday borrowing increases.
    What consumers need is vigorous enforcement of laws which ensure 
that they are fully informed of the real cost of all of their options. 
We don't want consumers to choose a payday loan when, in fact, being 
late on a utility bill is a better choice for that month. We don't want 
consumers to choose to bounce 5 checks if the resultant $175 in 
overdraft fees could have been avoided with a $45 payday loan. We don't 
want consumers to elect to be chronically late on a bill which will 
unknowingly damage their credit rating, thereby decreasing their access 
to credit even further. We want them to be fully aware of all of their 
options, their real costs, and the consequences (short-term and long-
term) of each of their choices. Eliminating one of the choices with the 
hopes of suppressing demand is ineffective and probably harmful. 
Communication, in as many forms as possible, is what will best serve 
the customer.
    We can all agree that, for some consumers, a payday loan turns out 
to be a bad choice. Research suggests that is about 10 percent of 
payday borrowers, as indicated by their inability to pay back the 
principle of the loan easily within the term of the loan. The 
industry's response to this is to offer extended payment plans for that 
particular consumer. Good public policy will ensure that extended 
payment plans are built into the regulation of payday loans, but not to 
a point where consumers have little incentive to pay back their loans 
on time under any circumstances. In sum, at a certain point it is clear 
that a minority of payday borrowers are ``in trouble,'' and the 
industry and regulators should ensure a ``safety net'' for those 
consumers.
    This concludes my review challenging the findings of the First 
Nation's Development Institute study. It is my professional opinion 
that this paper combines faulty data points along with numerous 
factually inaccurate assertions providing a misleading picture of the 
payday loan industry. I would caution you and the Members of this 
Committee from basing any conclusions derived from the findings of this 
report.
    Thank you for your time and attention.
                                 ______
                                 
 Prepared Statement of the Umatilla Reservation Housing Authority Staff
    Mr. Chairman, and members of the Committee, we are the Umatilla 
Reservation Housing Authority (URHA) \1\ of the Confederated Tribes of 
the Umatilla Indian Reservation (CTUIR). \2\ We wanted to provide a 
little information about what Umatilla is doing to combat predatory 
lending on our reservation.
---------------------------------------------------------------------------
    \1\ http://www.urhousing.org
    \2\ http://www.umatilla.nsn.us
---------------------------------------------------------------------------
I. History
    URHA developed the six-week Wapayatat (meaning to learn): Financial 
and Homeownership series integrated with the Individual Development 
Accounts (IDA) savings-match concept in 2001. Umatilla developed and 
implemented the legal infrastructure to begin lending on the 
reservation prior to executing mortgages, but in the meantime the next 
course of action was to provide the tools to community members on how 
to save and budget with a long-term goal to assist families in gaining 
assets and building wealth. The program created down payment assistance 
as an IDA 3:1 match and later developed a Umatilla Builds IDA 5:1 match 
for site development costs due to the tribal trust land complexities on 
the rural reservation.
    Although the initial goal was to help move families into a 30-year 
mortgage, the financial literacy portion needed to be the most critical 
objective to achieving home ownership. The program assisted nearly one-
third of the community population and identified a variety of 
challenges that was not only unique to Indian country, but prevalent in 
nearly any community such as high interest rate car loans, high 
interest credit card debt often with high credit card balances, lack of 
credit or no credit, no assets, subsidized housing (rentals or HUD 
lease-to-own housing) into mortgages, fear of or bad relationships with 
lenders, racial barriers, no savings or budget plan and changing 
mindsets from a perception of free housing.
    Umatilla adopted the Building Native Communities curriculum and 
tailored it to the community needs. Umatilla partnered with community 
stakeholders such as lenders, credit counseling, CPA's, attorney's, 
small business, economic development, and other expertise to help 
members understand how to be in financial control.
    Nearly 1,500 Native Americans \3\ reside on the reservation in 
which CTUIR currently owns approximately 174,000 acres of checker-
boarded reservation land. The housing needs are dismal with nearly 230 
rentals and 150 lease-to-own HUD housing developed since the late 
1960s.
---------------------------------------------------------------------------
    \3\ 1,200 enrolled Umatilla Tribal Members; 300 Other Native 
Americans according to CTUIR enrollment data.
---------------------------------------------------------------------------
II. Importance
    Financial education is important to Umatilla, because it allows the 
people to invest in the future, it creates a stronger-governance, it 
builds a healthy nation and the people have better control over their 
destiny including the ability to buy homes and pay their own bills.
III. Obstacles
    Umatilla faces many challenges as is a common thread throughout 
Indian County today. As Oregon's only Tribal rural checker-boarded 
reservation out of nine federally recognized Tribes in the state there 
lies a fury of tribal trust land complexities, Bureau of Indian Affairs 
(BIA) oversight of the land and long waiting lists for title status 
reports, generational poverty issues, the ability to move families from 
subsidized housing into a 30-year mortgage, first-generation and first-
time homeownership and the list goes on.
    As many Tribes face, there is a quixotic perception that Indian 
Tribes have a lot of money. Umatilla received $85,000 in 2008 to build 
housing. Indian Housing Authorities relied heavily on federal funding 
formerly known as the 1937 Housing Act. When the Housing Urban 
Development (HUD) revamped the program in 1996 and called the funding 
Native American Housing and Self-Determination Act (NAHASDA), the 
funding decreased and the needs continue to be unmet. Poverty is still 
prevalent, but as Tribes focus on diversifying economic development on 
the reservation the ability to earmark dollars for the social need will 
take time. These efforts have only occurred over the past ten years. 
Tribal families have been able to increase incomes through new 
employment, which no longer meet the income restrictions through 
federal funding. This is also a success, but requires ongoing education 
to understand why there is no funding to build fair market rate rentals 
or development for those who no longer meet under the 80 percent median 
income levels. Next, Indian Housing Authorities face the daunting task 
to rehabilitate existing housing stock built as far back as the late 
1960s. IHA's are finding mold and mildew problems, subflooring, roof 
repairs and the list of repairs go on. In most cases, NAHASDA funds can 
barely meet these needs. IHA's face a long list of responsibilities 
from administration, financial oversight, management, operations, crime 
prevention and the ability to create safe neighborhoods. Umatilla not 
only works on protecting families from predatory lenders, but is also 
responsible for compliance and management of the housing authority and 
providing services to the community.
IV. Successes
    Nearly 400 individuals have participated in the classes, which has 
been an amazing feat for Umatilla. In lieu of the myriad obstacles and 
challenges, Umatilla continues to persevere and work at helping 
families become self-reliant. Umatilla's mission statement is to 
provide quality, community housing services and empower self-sufficient 
living for future generations. Umatilla wants to learn from the past 
and work on building communities to last generations. \4\
---------------------------------------------------------------------------
    \4\ Umatilla adopted new slogan called ``Building communities to 
last generations.''
---------------------------------------------------------------------------
    Pay day loan venues, rent-to-own vendors and shady car dealers were 
taking advantage of people's lack of financial education, but through 
education and extensive counseling, participants were learning so much 
more. Extensive budget counseling identified nearly 75 percent of class 
participants with maxed out credit cards who were paying late fees and 
high interest rates exceeding 28 percent or more. ``We were paying 
14.95 percent interest and now we are paying 7.5 percent interest rate 
after getting pre-approved,'' remarked one class participant. Another 
member shared, ``I learned about buying a home, but also about interest 
rates, car buying and unnecessary spending habits.'' Keeping in mind, 
predatory lenders are sometimes the only hope for families because they 
have nowhere else to turn. Wapayatat provides individuals the tools to 
understand the process and the fees attached to borrowing money from 
any lender. Umatilla partnered with the local Legal Aid office and 
worked with the Attorney General's office to present material on how to 
understand what predatory lending is about and how much it costs.
    ``Indian people weren't put here to be business people, in real 
estate, or even own businesses. They only knew one thing and that was 
to live off the land, the only way we knew how since the beginning of 
time. During the Great Depression era our Indian people of the 
Umatilla, Yakama, Wanapum, & Warm Springs wasn't even affected by this. 
They didn't value the dollar like everyone else. They still lived off 
the land in our areas. I heard my uncles say this and it's important 
for all to know and understand that today we are behind main stream 
America and we too are being ripped off, but we know about that too 
much.''--Marcus Luke II, Tribal Member and First-Time Homebuyer/URHA 
Homeownership Counselor.
    The Wapayatat classes are critical and Umatilla is slowly adjusting 
to those changes today, now that there is an economy. Umatilla is 
learning about assets and the ability to grow and the purpose to 
educate the young people yet to come. Umatilla understood this need and 
implemented the action to protect themselves from the predatory 
lenders. As a 2006 Harvard Honoring Nations Award and the 2007 National 
Association of Realtors Award, the seven-year program continues to make 
incredible strides, yet slow, but steady. Umatilla has leveraged nearly 
$3.5 million in mortgage lending back into the community from first 
generation and first time homebuyers. Nearly one-fourth of the 
population completed the six-week series and nearly 25 families became 
first-generation and first-time homebuyers on the reservation.
V. Recommendations
    In order to truly reduce poverty and gain assets on the 
reservation, it will be imperative for Tribes to have legislative 
representation to help decision-makers understand sovereignty and the 
ownership of land or real estate. The land today remains under the 
auspices of the federal government and can only be leased land.
    Additional funding needs are critical to help provide needed staff 
capacity to manage effective programs and develop codes to help combat 
predatory lending on reservations.
    The last suggestion would be to provide funding to community 
partners or agencies that not only provide literature, but have the 
ability to provide extensive counseling and education needs.
VI. Conclusion
    Joe Garcia, National Congress of American Indians former President 
sums up what Wapayatat's vision is on the Umatilla Indian Reservation, 
``Financial Savvy individuals become financially savvy Tribal leaders 
who are equipped to make sound decisions for their communities.'' As we 
prepare our future leaders, Wapayatat is one effort to help combat the 
predatory lending issues that run rampant in every community, but will 
also protect our families and future generations to be financially 
strong.
    In conclusion, Antone Minthorn, Board of Trustees Chairman 
summarized the hopes and dreams for the Umatilla Indian Reservation, 
``Self-governance . . . that means it is a place to build modern houses 
for people to live in; to build an economy to help the people so they 
can help themselves and their families; and as a part of creating 
economic wealth, the personal responsibility of money management or 
financial literacy. A viable Tribal economy means there is authority 
and power to protect and enhance Tribal culture.''
    We would like to thank you Mr. Chairman, and the Committee, for the 
opportunity to share this information in testimony today and for your 
interest in this subject and this Act which is critically important to 
many across Indian Country. We would be happy to provide any additional 
information that we have that would be of interest to the Committee.
    Thank you.
                                 ______
                                 
 Prepared Statement of Tex G. Hall, Former Chairman, Three Affiliated 
   Tribes--Mandan, Hidatsa, and Arikara; Former President, National 
                      Congress of American Indians
    Mr. Chairman:
    I thank you, Mr. Chairman, my Senator and good friend, as a 
constituent of yours from North Dakota, for the opportunity to share my 
thoughts with the Committee, on the subject of payday lenders operating 
in and near Indian Country.
    I am Tex G. Hall, Ihbudah Hishi (Red Tipped Arrow). I am a past 
President of the National Congress of American Indians and past 
Chairman of my Tribe, the Mandan, Hidatsa and Arikara Nation in North 
Dakota. Today, in addition to my work as Chairman of the Inter-Tribal 
Economic Alliance and CEO of a private Equity Firm, MTE Management, I 
am also the former Chairman of the Board of the Native American Bank. 
Although the Native American Bank does not involve itself in the area 
of payday lending, I understand banking, I understand risk, and I 
understand business. Unfortunately, growing up in Indian Country, I 
also understand how hard it is to get a loan.
    It is because of my first-hand experience growing up in a hand to 
mouth existence, with two pair of overalls, one for school and one for 
ranch work, in a hard-working Indian ranch family that struggled to get 
ahead, that I have dedicated my adult life to furthering economic 
opportunities for Indian people and Indian businesses. I am very aware 
of many Indian people who have availed themselves to the services of 
payday lending and I feel that such lending is a service that is needed 
in lower and middle income communities.
    Payday loans fulfill an unmet need for many, and are a viable 
short-term financial option:

        The fact is, payday loans are for small amounts, less than 
        $500, and I understand more than half of the loans are for less 
        than $300. The term of the loan is usually for two weeks. Mr. 
        Chairman, you and I both know, banks will not loan such small 
        amounts for such short terms, there is simply no profit in it. 
        Most consumers who seek these loans have had an unexpected 
        circumstance, such as car repair, or other small emergency that 
        has left them short of funds until payday. Banks see the 
        inability to prepare for unexpected expenses as further 
        indication of high risk, payday lenders see filling this need 
        as a business opportunity. The average fee for a payday loan is 
        15 percent of the principal amount, which seems high given the 
        short, two week duration of the loan, but when you consider 
        that these lenders are willing to provide a service, to fulfill 
        a short-term need, that would otherwise be unmet; that they are 
        willing to assume a risk that traditional banks will not 
        assume, their compensation for that service is not 
        unreasonable. Why would consumers take out such a loan? Well, 
        if a consumer bounces checks to fulfill their short term needs, 
        gas to go to work, groceries for their family, the multiple 
        fees involved in bounced check charges and merchant recovery 
        charges will cost far more than a 15 percent payday fee. People 
        living on tight budgets can easily do that math.
Payday Concerns
    Mr. Chairman, I share your concerns about stories of short-term 
lenders ``preying'' on low income people, including Native Americans. 
It is for this reason that I have familiarized myself with the 
Community Financial Services Association (CFSA) and their ``Best 
Practices'' requirements for their membership of payday lenders. Many 
of the predatory lenders are not of the payday variety and those that 
are, are not members carrying the CFSA seal. CFSA has been working with 
state governments to promote regulation of unscrupulous lenders of all 
types and trying to establish that best practices are followed in all 
states.
    CFSA members only give loans to consumers who can provide proof of 
employment or other steady source of income, and proof of an existing 
checking account. This indicates a reasonable expectation of the 
individual's ability to pay. This also disqualifies many Indian people 
on poor reservations where the unemployment rate is often 60 to 80 
percent from taking out a loan that cannot be paid back.
Paternalism in Indian Country
    I fear, that although well-intentioned, singling out Indian Country 
for ``protection'' from a legitimate financial alternative would not 
only be unworkable, and paternalistic, but unfair as well. Unworkable, 
because how would a lender decide if a consumer was Indian? By their 
appearance? By Tribal I.D. card? Paternalistic because an adult, 
American Indian Tribal member, with a job, and checking account is 
surely able to represent themselves in the financial marketplace. If 
there are concerns about basic understanding of financial principles 
among certain members of an Indian community, please allow the Tribes 
the opportunity to provide financial counseling or enter into 
agreements with outside organizations, like CFSA, that can provide such 
education. Additionally, Tribal leaders should be allowed to work with 
their state governments on effective reforms where needed, not a one 
size fits all approach. For it would be unfair to deny qualified Native 
People a viable financial alternative for short term financial 
assistance that is not provided by the mainstream financial 
institutions.
Rate Caps Deny Access
    One approach by those that have the complete elimination of payday 
lending as their goal, is rate caps. Such rate caps are usually in line 
with high interest credit cards, about 36 percent annually, which 
sounds quite high to those of us comparing annual rates. However an 
annual percentage rate of 36 percent on a payday loan of $250.00 for 
two weeks would only amount to less than $1.80 for the lender. There is 
no incentive for the lender to assume the risk, if the fee is less than 
two dollars! That effectively drives lenders out of business, and takes 
this financial option off the table for consumers. Be aware, the 
consumer's circumstances haven't changed, just their access to money 
has been denied, so they now must pay higher rates for bounced check 
fees for gas and groceries, or to have utilities reconnected after 
payday. If such caps were only placed on businesses doing business near 
Indian reservations, then the effect will be that Indian People will 
have to use more gas to drive further to avail themselves to the payday 
option. What we need is more credit options in Indian country, not 
less.
Conclusion
    I have no financial interest in any payday loan businesses. I come 
to you today simply as an American Indian leader and businessman who 
understands that businesses only survive if there is a legitimate need 
for their services. I know of many people who have needed the services 
of the payday lender. Is their rate one which I would pay to finance a 
long-term project, or a car or home? Certainly not. But, Indian people, 
like all consumers of moderate means, will have occasion when this type 
of financial option might be the difference between feeding your family 
for a few days, or bouncing hundreds of dollars of checks. It should 
not be taken off the table, simply because we are Indian people.
    Like all businesses, there may be some who abuse the system and 
take advantage of consumers, including Tribal members, and we should be 
allowed, as sovereign Tribal governments, to work with state 
governments to address issues that concern us and find a balance 
between keeping limited financial options open to Indian Country while 
reigning in unscrupulous business people. I would also be willing to 
work with the people at CFSA and in the banking industry as a whole, to 
expand financial education to all of our people. Education, ultimately 
is the answer to most problems, not regulation.
    Mr. Chairman, I thank you again for your time, and for your service 
to Indian Country.
                                 ______
                                 
 Prepared Statement of John P. Jurrius, President/CEO, Native American 
                         Resource Partners, LLC
Introduction
    I would first like to thank and commend Chairman Dorgan and Vice 
Chairman Murkowski for holding today's hearing on an issue of such 
importance to Indian tribes and their members. My name is John Jurrius 
and I am the President and Chief Executive Officer of Native American 
Resource Partners, LLC (NARP), a private equity firm dedicated to 
working with and investing in Indian tribes to help them achieve their 
economic development goals.
    Prior to founding NARP I served as financial advisor and strategic 
counselor to several Indian tribes. From 1995 to 2001 I served in these 
capacities to the tribal council of the Southern Ute Indian Tribe 
located in southwest Colorado. From 2001 to 2007 I served in these 
capacities to the tribal council of the Ute Tribe of the Uintah and 
Ouray Reservation in northeastern Utah. I have worked with other Indian 
tribes as well.
    I was honored to work with the leadership of these tribes and my 
role was to help them access the capital markets, provide strategic 
guidance on how to aggressively deploy and maximize their energy 
resources, and bring discipline to the interaction between tribal 
government decision-making and tribal commercial operations. In 
particular, I aggressively pursued what was then a novel concept in the 
realm of Indian energy: the active participation by Indian tribes in 
the development of energy resources on tribal lands. These activities 
were made possible by securing over $900 million in capital for tribal 
development partnerships and the creation of several billion dollars of 
commercial value by forging partnerships between Indian tribes and 
industry participants.
    The tribes I worked with made the decision to re-assume control 
over their energy assets and in so doing have made remarkable strides 
in generating revenues, creating job opportunities, and achieving long-
term economic stability for their members.
    The Ute Tribe of the Uintah and Ouray Reservation had no commercial 
ownership of their energy activities when I began working with them in 
2001. Seven years later, the tribe is an owner of Ute Energy LLC, which 
owns commercial interests in over a hundred oil and gas wells on tribal 
lands, generates hundreds of millions of dollars in energy revenues, 
and possesses an interest in one of the largest gas gathering plants in 
the State of Utah served by some 120 miles of gas gathering pipelines 
and related infrastructure. The tribe's progress is a testament to its 
leadership and tenacity in wanting to improve the lives of tribal 
members.
    I am particularly proud of the success enjoyed by the Southern Ute 
Indian Tribe. As recently as 1990, the tribe was a poor tribe with 63 
energy companies operating on the reservation. In 1992, the tribe 
formed a tribal energy corporation to buy back the leases it had 
entered with the private energy companies. Through expanded energy 
development and skillful acquisitions, by 2005 the tribe came to own 
commercial assets worth more than $3 Billion. The tribe has a bond 
rating that exceeds the ratings of Denmark and Japan, operates a 
sprawling real estate portfolio, and is identified by industry as 
owning the eleventh largest private energy company in the United 
States. This tribe, by any standard, is engaged in Indian Self-
Determination on a scale and to a degree that no one could have 
foreseen just 18 short years ago.
    This hearing is timely given the recent sub-prime meltdown that is 
still rippling across the American economy and the lives of Americans 
nationwide. Predatory lenders, whether lending for home mortgages, 
business loans, or for other purposes, can and do take advantage of the 
most vulnerable members of American society including tribal members 
located on the reservation. In past years, this Committee has 
investigated such practices as lender ``red-lining'' in Indian 
communities and the general lack of capital and credit available to 
Native people.
    I have seen banks and other lenders treat Indian tribes and their 
members poorly when it comes to lending practices, unsavory fee-
charging schemes, and other arrangements that did everything to serve 
the interests of the banks but virtually nothing to serve the interests 
of the Indians.
    The capital deficit in Indian country is not simply a cause of 
concern for economists or the Congress. Real people are suffering very 
real problems because of it. Despite recent improvements in the 
Indians' economic and social well-being, they continue to suffer high 
rates of unemployment and poverty, poor health, substandard housing, 
and social ills compared to any other group in the U.S.
    To outside observers, this situation is in stark contrast with the 
Indians' rich cultural legacy and, in many cases, abundant natural 
resources on and under their lands and in their waters. As you know, 
large numbers of Indian tribes possess developable timber, huge 
reserves of coal, natural gas, and oil, fish and shellfish, and other 
natural amenities.
    Yet the potential for economic progress and improved standards of 
living is stifled by geographic remoteness, distance from markets and 
population centers, a lack of physical infrastructure, a mixture of 
governmental and business functions, and most of all a lack of capital 
and proven financial expertise.
    For decades efforts have been made by the Federal government and 
tribal leadership to resolve these problems and create more vibrant 
economies for the benefit of Indian people. Indeed, this Committee has 
focused on these factors--both alone and in combination--as part of its 
efforts to help stimulate Indian economies and make the American Dream 
achievable for America's Native people.
Energy Development in Indian Country
    On May 1, 2008, this Committee held an Oversight Hearing the title 
to which I believe is a perfect description for how Indian country is 
currently positioned. The title of the Hearing was ``Regaining Self-
Determination over Reservation Resources.''
    There are three factors that give me reason to believe Indian 
country may be on the verge of an Economic Renaissance made possible by 
the prudent and sustainable development of energy resources on tribal 
lands. These factors are:

   The enactment in 2005 of the Indian Tribal Energy 
        Development and Self-Determination Act (Title V of Pub. L. 109-
        58);

   The enormous energy resources the tribes own; and

   The current pricing environment for energy products.

    Heeding the calls by tribal leaders in the years leading up to 
2005, this Committee endorsed a classically liberal, pro-production 
Indian energy law that seeks to encourage tribal sovereignty and 
decision-making when it comes to energy resources. The new law will 
assist willing tribes develop whatever resources they have--whether 
renewable or non-renewable--and to that end provides technical and 
other assistance to them.
    This new law also includes provisions that will assist tribes 
identify and inventory their energy resources, require the Federal 
purchase of energy produced on Indian lands, direct the Department of 
Energy to establish an Indian energy guaranteed loan program, and many 
others of importance.
    While the new Indian energy law is comprehensive in scope and will 
encourage the development of Indian energy resources, what it does not 
and cannot provide is the volume of capital that modern energy project 
development requires.
    The second factor is the importance of tribal energy resources. 
Indian tribes also possess energy resources of enormous quantity and 
world-class quality. As far back as 2001, even before the run-up in 
world energy prices, the U.S. government estimated that if tribes chose 
to develop just their non-renewable resources (oil, gas, and coal) they 
would generate hundreds of billions of dollars in revenues that would 
be available for tribal needs such as health care, elder care, law 
enforcement, education, housing and others.
    These projections must be given some perspective: Indian gaming 
generates $25 Billion in gross annual revenues and has resulted in the 
rapid development of Indian economies fortunate enough to be located 
near urban population centers. If the Indian energy sector receives the 
kind if nurturing, technical expertise, and capital that is called for, 
we have every reason to think Indian energy revenues will come to dwarf 
Indian gaming in just a few short years.
    The third factor at play is the pricing environment for energy 
resources. Oil is now priced at $120 per barrel. The price of natural 
gas is $12 per million cubic feet, and the price of coal ranges from 
$40 per short ton in the Powder River Basin to $65 in the Illinois 
Basin to $108 in Appalachia. Energy economists do not foresee a time 
when these prices will abate in any significant way and, taken 
together, these factors present an opportunity for Indian country that 
has never been present before but the lack of capital is holding the 
tribes back. With the founding of the Native American Resource 
Partners, LLC, that is about to change.
Capital for Indian Country Development
    It is no secret that lack of capital is a major impediment to 
economic growth and development in Indian country. In November 2001 the 
Department of Treasury's Community Development Financial Institutions 
Fund issued ``The Report of the Native American Lending Study''--a 
comprehensive study of lending and investment practices on Indian 
reservations and other lands held in trust by the United States. The 
Report issued dozens of findings and made recommendations to the 
Congress and the President to overcome the obstacles encountered by 
Indian tribes and their members. Among its conclusions, the Report 
states

        ``Native American economies have about half the level of equity 
        that comparable international economies (that is, countries or 
        regions with similar GDP, population and other demographic 
        factors) have. Further, the Equity Investment Research Report's 
        comparisons to Indian Lands to similar economies suggests that 
        if external equity investors were located in or serving Indian 
        Lands and if the strategies to overcome existing obstacles were 
        pursued and were successful, an additional $10 billion in 
        equity could be invested in the Native American economy.''

    The need for capital in Native communities is great but only part 
of the demand is being met. Some Indian tribes own financial 
institutions to support economic development and housing. In addition, 
there are 19 tribally owned banks helping to provide banking services 
and capital to tribes and their members. There are also credit unions 
and Federally-created tools like Community Development Financial 
Institutions (CDFIs) that are now operating in Native communities.
    As important as these sources of capital may be for purposes of 
housing, consumer credit, and small business loans, the volume of 
capital is simply too modest and the institutions lack the capacity for 
the kind of risk involved with energy development. The Native American 
Bank, a consortium of Indian tribes, Alaska Native Corporations, and 
other depositors, has just $59 Million in capitalization to lend across 
the breadth of Indian country.
    These entities provide services that help meet the demand for 
capital but, frankly, the need for investment capital and growth in 
Indian country are simply too great to be satisfied by the existing 
lenders.
NARP'S Mission and Role in Capitalizing Tribal Projects
    Whereas historically Indian tribes have assumed a passive role in 
the development of their energy resources, NARP's vision is to be 
partners in investing alongside tribes in their own tribal energy 
corporations. The Southern Ute Indian Tribe and the Ute Tribe of Utah 
have both used this model to achieve extraordinary success and benefits 
for their members.
    Whereas the passive model relies on a lessor-lessee relationship 
between an Indian tribe and its energy partner, NARP's business model 
will help tribes build and operate lasting tribal enterprises that 
bring significant returns to the tribe and jobs and incomes to the 
tribal members.
    The reason I founded NARP is to create an avenue for private sector 
capital to be channeled into Indian country for the development of 
energy and associated resource opportunities. The NARP model relies on 
the proven methodology of providing needed capital to tribes to create 
tribally-owned and operated energy resource companies in the service of 
Indian Self-Determination.
    NARP's focus is not on developing or encouraging private sector 
energy companies in Indian country but investing in energy companies 
owned and operated by the tribes themselves on tribal lands.
    Over the course of more than 15 years working with Indian tribes I 
have raised large amounts of capital for those tribal clients as needed 
for specific projects. My experience demonstrated to me the reality 
that there simply was not an avenue for private capital to be accessed 
by Indian country for development purposes.
    In recognition of the billions of dollars of capital that has moved 
into the energy sector over the last 5 years seeking and competing for 
investment opportunities in exploration and development, mid-stream and 
service companies, the opportunity to establish a ``Private Equity 
Fund'' committed to Indian country at large was necessary and 
appropriate.
    NARP is backed by Quantum Energy Partners IV, LP, a private equity 
firm founded in 1998 and specializing in the energy industry with over 
$3.2 billion in capital currently under management. With the resources 
and contacts of the Quantum team behind it, NARP will have access to 
significant capital to be used in pursuing energy opportunities with 
Indian tribes, including opportunities to develop oil and gas reserves, 
midstream and downstream assets, power generation and transmission 
assets, geothermal assets, renewable energy assets and water rights and 
associated infrastructure.
    NARP anticipates that it will leverage the capital and contacts of 
Quantum to make direct investments as well as sponsoring the 
development of other energy opportunities involving other participants. 
I am pleased to inform this Committee that NARP was not only successful 
in attracting capital for the purpose of investing in Indian country 
but has secured a level of commitment never seen before in Indian 
country: NARP has available to it and can deploy over $1 Billion in 
capital dedicated to Indian country projects.
    Mr. Chairman, I am certain that under your leadership the Committee 
will continue to pursue the issues of concern to tribal communities 
such as health care, education, housing, roads, law enforcement, and 
all the other challenges faced by the tribes and their members. In 
large measure, these challenges can be met with an infusion of 
resources and an intense focus by the responsible decision-makers.
    I remain convinced that the problems Indian country faces can be 
solved by tribal leaders willing to accept the responsibility of Indian 
Self-Determination and begin to regain control over their energy 
resources and, indeed, over their own destiny.
    That concludes my statement and I thank the Chairman for the 
opportunity to present my views on this important issue.
                                 ______
                                 
  Prepared Statement of Marty Shuravloff, Executive Director, Kodiak 
  Island Housing Authority; On Behalf of the National American Indian 
                        Housing Council (NAIHC)
    On behalf of the National American Indian Housing Council \1\ 
(NAIHC), I respectfully submit this testimony to the Senate Committee 
on Indian Affairs (``the Committee''), regarding the Oversight Hearing 
on Predatory Lending in Indian Country. I serve as the Executive 
Director of the Kodiak Island Housing Authority in Kodiak, Alaska. I am 
an enrolled member of the Lesnoi Village, Kodiak Island, Alaska. I am 
also the Chairman of the National American Indian Housing Council.
---------------------------------------------------------------------------
    \1\ The NAIHC was founded in 1974 to support and advocate for 
tribes and tribally designated housing entities (TDHEs). For nearly 35 
years, the NAIHC has assisted tribes with their primary goal of 
providing housing and community development for Native Americans. The 
NAIHC consists of 266 members representing 460 tribes. The NAIHC is the 
only national organization whose sole mission is to represent Native 
American housing interests throughout the Nation.
---------------------------------------------------------------------------
    Without a doubt, predatory lending exists. The purpose of this 
testimony is not to debate the existence of impacts to Indian country. 
Rather, we hope that this testimony will offer the Committee our 
perspective on predatory lending and what we believe can be done to 
combat the ill-effects of such practices. Namely, we believe now is the 
time to devote considerable resources on financial education.
    The pervasiveness and impact of predatory lending in all its 
iterations has destructive consequences in Native communities. Still, 
the NAIHC believes the impact can be limited through increased 
financial education programs and through the development and promotion 
of asset building rather than asset stripping in Native communities. 
The NAIHC has been actively involved in the development, promotion and 
training for homebuyer education since 2004. We are expanding that 
service to include more curriculum development that centers on credit 
counseling, predatory lending, and credit repair. To this end we will 
offer several nation-wide training sessions later this year and in 
2009. Additional support is needed to meet the growing demand for more 
financial education in Indian country.
What is Predatory Lending?
    Predatory lending is defined by the FNDI as: Any predatory loan 
that is commonly understood to be an unsuitable loan designed to 
exploit vulnerable and unsophisticated borrowers. Predatory loans may 
have inappropriately high interest rates or fees or terms and 
conditions that trap borrowers; often, these conditions are not well 
explained to borrowers.
    There are several methods that predatory lenders employ, such as 
payday lending, loans made in anticipation of tax refunds, pawn shop 
transactions, car title loans, and housing loans, especially for mobile 
homes. Many of these loans are of a type that is commonly understood to 
be of an unacceptable nature designed to exploit borrowers who are 
among the most vulnerable and financially uninformed. While some view 
this as ``credit abuse,'' casting such aspersions on the borrower is 
not unusual in circumstances where the victim is seen as the culprit.
2007 NAIHC Survey
    The NAIHC conducted a survey of its membership who participated the 
2007 NAIHC Annual Convention. The purpose of this survey was to inform 
our decisions regarding the training and technical assistance that we 
offer our membership.
    The NAIHC works closely with financial education leaders in Indian 
country such as the Oweesta Corporation, an affiliate of First Nations 
Development Institute (FNDI), to help provide tribes access to the 
tools they need to ensure financial education is available to tribal 
members. In partnership with FNDI, the survey was expanded to focus on 
the predatory lending practices that our tribal housing authorities 
experience in their communities.
    The NAIHC membership is made up of housing professionals who work 
closely, and in many cases on a day-to-day basis, with their low-income 
residents to qualify them for rental assistance, down payment 
assistance, and other critical financial issues. These housing 
professionals manage admissions and occupancy policies and determine 
rental rates that are income-based. NAIHC's housing professionals work 
with basic Indian housing legislation, federal regulations and 
guidance, tribal housing policies; they also work in the area of 
assets, debts, and other financial scenarios; and they see predatory 
lending as an issue of signal importance in their tribal communities.
    More than 160 of NAIHC's housing professionals completed the survey 
at the 2007 Annual Convention. While relatively small, this survey is 
useful because tribal housing professionals are in a unique position by 
virtue of their direct involvement in the provision of low-income 
housing assistance. Miriam Jorgensen, Associate Director for Research 
at the Native Nations Institute at the University of Arizona and 
Research Director for the Harvard Project on American Indian Economic 
Development, analyzed the data and noted that these housing 
professionals ``know individuals and communities . . . they engage them 
in loan markets, and they are basing their perceptions on that 
knowledge.''
    Predatory lending was seen by 73 percent of NAIHC's housing 
professionals as an issue in their community. Just over 30 percent of 
the respondents identified predatory lending as a ``big'' problem while 
nearly 43 percent indicated predatory lending as ``somewhat'' of a 
problem. According to the NAIHC survey respondents, the largest single 
source of predatory lending was tax refund anticipation loans. Nearly 
36 percent of survey respondents indicated that these refund 
anticipation loan were a ``big'' problem in their community. Other 
``big'' problems identified were payday loans and pawnshop transactions 
at 33 and 30 percent, respectively.
Recommendations
    On May 14, 2008, the NAIHC membership made financial education a 
priority of the organization. The NAIHC membership resoundingly 
approved Resolution #2008-08, ``Supporting the Policy Recommendations 
of the Native Financial Education Coalition'' (Coalition). The 
Coalition is a group of local, regional, and national organizations and 
government agencies, coordinated by First Nations Oweesta Corporation, 
which works to promote financial education in Native communities. 
Resolution #2008-08 includes the following:

   Endorsement and support NFEC policy recommendations on 
        financial education to federal and tribal policymakers;

   Encouragement of its members to create and support Native 
        Community Development Financial Institutions (CDFIs) or other 
        organizations that offer financial education, credit counseling 
        and affordable loan products as an alternative to predatory 
        lenders;

   Collaboration with state governments to establish policy 
        agendas that combat all types of predatory lending, 
        particularly those that affect Native communities, including 
        Indian reservations and border communities;

   Support for the creation of Volunteer Income Tax Assistance 
        sites to assist Native people to file their income tax returns 
        free of charge and avoid using high cost commercial tax 
        preparers; and to create and support matched savings programs 
        such as Individual Development Accounts (IDAs), children's 
        savings, retirement, and college savings, adding tribal support 
        to other resources available for funding these programs.

    The NAIHC also endorsed the recommendations made at the conclusion 
of the FNDI study. The NAIHC will work with its non-profit 
collaborations, with the federal agencies, foundations, other national 
Indian organizations and, of course, the Senate Committee on Indian 
Affairs and other committees of jurisdiction to implement those 
recommendations that would result in the:

   Development of credit programs and borrowing opportunities 
        that reduce the demand for predatory lending;

   Implementation of consumer education programs that assist in 
        homebuyer education, financial planning, and credit repair;

   Establishment of interest rate caps where appropriate; and

   Collaboration with States and local governments to minimize 
        the impact of predatory lending in Indian communities.

Summary
    We would like to summarize our remarks with the following 
observations.

   Predatory lending appears in many forms in Indian country--
        but it does appear, and its impact harms Native communities. 
        Clearly, further research would reveal more accurate 
        information about the extent of that impact and we welcome that 
        research.

   NAIHC believes access to capital is an ongoing obstacle to 
        housing and community development in Indian Country.

   Financial education is the key to combating predatory 
        lending.

   Financial education should be culturally-specific and 
        tailored to Native communities. These programs exist and should 
        receive more support and recognition by Federal appropriators.

   More access to financial services should be created to 
        provide alternative credit programs. This is especially true 
        for Native American non-profit programs such as the Community 
        Development Financial Institution programs though the U.S. 
        Department of the Treasury. Responsible borrowing opportunities 
        should be increased to minimize the demand for predatory 
        lending.

   Asset development, including tribal Individual Development 
        Accounts and other forms of matched savings accounts, should be 
        emphasized to change the landscape from asset stripping to 
        asset building.

Conclusion
    Thank you for the opportunity to submit our perspectives, concerns 
and recommendations. On behalf of the NAIHC Board of Directors and 
membership, thank you for your continuing efforts to improve the 
housing conditions of American Indian, Alaska Native and Native 
Hawaiian peoples. The NAIHC stands ready to work with the Committee to 
further those efforts.
                                 ______
                                 
 Prepared Statement of the National Congress of American Indians (NCAI)
    The National Congress of American Indians, the nation's oldest and 
largest national organization representing tribal governments, 
sincerely hopes the hearing held this past Thursday, June 5, 2008 
serves to bring to light the important role Congress has in ensuring 
tribes are empowered to protect their citizens and give them every 
opportunity to advance themselves and their families.
    This Committee knows well that American Indian Tribes continue to 
occupy the bottom of key indicators of prosperity: employment, asset 
holdings, home ownership, educational attainment and economic progress. 
American Indian communities, regardless of economic success, lack 
viable financial choices leaving them among the most under-banked in 
the nation. Having non-banking financial services fill the void is not 
an option that any community, military base or reservation should have 
to settle for.
    The primary cause of our current economic downturn is the housing 
industry. The housing market run up and subsequent fall was caused by 
lax regulation of the mortgage intermediaries and financial service 
firms. Intermediaries pushed loan pools through while firms loosened 
standard underwriting requirements and created new and hybrid loan 
products to qualify a larger number of potential buyers. This lack of 
proper underwriting or due diligence failed to adequately qualify 
buyers or limit the amount approved to a reasonable value of a home's 
worth. In addition, loan products designed for short term needs were 
sold to borrowers as long term loans with the idea that housing would 
continue to rise and interest rates would remain low.
    Now that the impact of the loan terms and adverse market conditions 
are being fully realized; many financial firms, homeowners, and 
ultimately most tax-paying Americans are paying the price with record 
defaults, decreased home values, tighter credit markets and possible a 
congressional fix that will allow the renegotiation of existing 
mortgages which may lead to further tightening of the credit markets. A 
recent article in the Washington Post (June 10, 2008) commented

        Loans were approved with little due diligence to qualify buyers 
        and, of course, the creation and use of new loan products 
        ``Eager to put more low-income and minority families into their 
        own homes, the agency [HUD] required that two government-
        chartered mortgage finance firms purchase far more 
        ``affordable'' loans made to these borrowers. HUD stuck with an 
        outdated policy that allowed Freddie Mac and Fannie Mae to 
        count billions of dollars they invested in sub prime loans as a 
        public good that would foster affordable housing.

        Housing experts and some congressional leaders now view those 
        decisions as mistakes that contributed to an escalation of sub 
        prime lending that is roiling the U.S. economy.

        Today, 3 million to 4 million families are expected to lose 
        their homes to foreclosure because they cannot afford their 
        high-interest sub prime loans. Lower-income and minority home 
        buyers--those who were supposed to benefit from HUD's actions--
        are falling into default at a rate at least three times that of 
        other borrowers.

        ``For HUD to be indifferent as to whether these loans were 
        hurting people or helping them is really an abject failure to 
        regulate,'' said Michael Barr, a University of Michigan law 
        professor who is advising Congress. ``It was just 
        irresponsible.''

    The very people who were supposed to be helped by the advancement 
of capital through lax regulation and due diligence are now the same 
people who have the greatest risk of loosing their largest potential 
asset and a tried path to the middle class. Predatory lending in its 
current state offers the same risk to an entire class of citizens.
    NCAI agrees that there is a need for tribal citizens to access 
micro loans backed by income or assets. However, we have heard from 
tribal leaders and those involved in financial literacy programs that 
they are increasingly dealing with the adverse effects of tribal 
citizens caught in a cycle of debt.
    For example, a tribal member on a rural eastern Washington 
reservation obtained a pay day loan from a border town to purchase 
household expenses during the winter. She lives on a fixed income and 
raises her grandchildren. The tribal member did not realize how the 
loan functioned and the high costs associated with the loan. The loan 
came due and the tribal member paid part of the loan but continued to 
have an outstanding balance owned. A few days after she paid the payday 
loan, her rent became due to the tribal housing authority. She did not 
have enough money to pay the rent in full so she paid a portion of the 
rent under her lease. Within a few days she was provided with a notice 
that she had not paid her rent in full and she had a meeting with her 
case worker as required by the tribal housing code but there was no 
accommodation for her because she did not have enough money to pay her 
rent.
    The month went on and she was unable to pay the rest of the rent 
and what she still owed on the pay day loan. When she received her 
public benefits the next month she paid a portion of the pay day loan 
but still could not pay it off. Again she did not make her rent 
payment. This time, there was no meeting with a case worker; she was 
given an eviction summons in tribal court.
    The impact of an eviction from a tribal housing authority is 
serious because the tribal citizen can no longer rent a tribal housing 
authority unit leaving her no other options in her home community. In 
the end this tribal member was evicted, still had to pay her on-going 
debt and had the same expense obligations to buy food, clothing and 
provide housing for her grandchildren.
    Where was the due diligence on the part of the lender? And where 
are the regulations that used to protect our people that need them the 
most?
    Predatory lending has the potential to be abusive to the consumer 
because the practice provides so little protection to the consumer. 
Banks and other financial institutions have an obligation to ensure a 
loan in the form of a mortgage, credit card, or personal loan is 
suitable for the consumer. They also can determine how much debt a 
consumer has with other financial service firms. The predatory lending 
industry has taken the obligation of consumer suitability out of 
consideration. The only underwriting or due diligence acknowledged is 
to ensure the industry participants will be repaid (paycheck, bank 
account to write an advanced check and identification). There is no 
consideration of a customer's ability to repay the obligation or a 
process for checking to see how many other lenders the customer has 
pledged their paycheck.
    The industry touts that most payday loans are repaid within the 
two-week period and that the average customer borrows from their checks 
about 8 times in a year (Fulmer testimony). While this may be the case, 
it leaves out the fact that many use multiple lenders and borrow from 
one lender to pay off the initial lender and so on with some customers 
holding up to ten loans at a time giving new meaning to borrowing from 
Peter to pay Paul (and all of his relatives).
    The lack of due diligence is the root of the current housing crises 
where consumers are at risk of losing their homes. And it is the root 
of the abusive practices of the predatory lending industry where it has 
the potential to strip an already vulnerable population of the 
opportunity to advance by preventing them from building assets, equity 
and wealth. This applies to both income lending (payday loans) and to 
asset lending (car or other title loans).
    There is no doubt that there is a need for micro lending backed by 
income or assets in Indian country and other parts of America; however, 
there is also no doubt that protections should be provided to 
consumers. There are no other aspects of the financial services 
industry--from investments to all other forms of lending--that forego 
the obligation of performing due diligence prior to a customer 
investing or borrowing money.
    The issue of predatory lending in Indian country is complex 
because, as with most issues, there are underlying causes that make 
tribal populations vulnerable to disproportionately using small payday 
loans to fulfill fundamental financial needs including high-interest, 
high fee, short-term loans with minimal due diligence. These loans are 
used not because they offer a great competitive alternative, but 
because they are simply one of only a few options available.
    Because of the persistent lack of economic opportunity, a 
sustainable financial services market, and tribal jurisdictional 
issues, there have only been a handful of banks or credit unions that 
serve tribal communities. As a result, tribal citizens continue to lack 
basic financial services or financial choices that most Americans have 
come to take for granted. Tribal members have limited access when 
financing a home, starting a business or purchasing necessary property 
like cars needed to make a living accessing a line of credit to meet 
short term capital needs.
    The vacuum created by the lack of responsive and regulated 
financial institutions offering competitive consumer financial products 
has been quickly filled by predatory lending firms that have 
proliferated after usury laws were lifted a few years ago. This is 
especially the case in transient and under-banked communities, like 
military bases and reservations.
    The effect of having a tribal population under-banked and subject 
to predatory financial firms is that it leaves limited and sometimes no 
viable options for responsive bank products. Tribal citizens pay higher 
fees and much higher interest rates. When an emergency arises such as a 
death in the family or medical bill, there is a greater risk of being 
caught in a cycle of debt, especially for tribal citizens that live 
check to check.
    There is real concern by tribal leaders to address predatory 
lending practices that target a captive Native population with limited 
choices and leave them dealing with the social repercussions. The lack 
of due diligence coupled with inadequate fee and interest-rate 
limitations make above average loan defaults or rollovers predictable 
and repayments from a fixed income very difficult. Especially 
considering the debtors expenses increase, compelling multiple loans 
from the same limited income.
    This lack of industry accountability is why banking laws and 
limitations were imposed in the first place and a core reason that our 
tribal population will be prevented from building equity and wealth 
through property ownership. While families with greater means or 
financial education turn to regulated financial institutions or are 
better able to negotiate terms; those with limited means and financial 
experience tend to get easily caught in a cycle of debt.
    The financial problems run deep in Indian country and will take a 
long time to fully address. Congress, agencies and intermediaries 
should focus on a 3-pronged approach to help tribal communities move 
toward a solution. The focus should be on; developing incentives to 
enable tribes to attract viable financial options and develop necessary 
products to serve their citizens, creating culturally-appropriate 
financial education programs, and authorizing jurisdiction over lenders 
that do business with their citizens.

        1. Financial Choice--Indian Country is under-banked. There is a 
        lack of regulated banking options that are responsive to tribal 
        community needs. This tends to be true regardless of a tribe's 
        success in building a local economy. The Community Development 
        Financial Institutions (CDFI's) have just started to meet the 
        needs of some tribal communities and Indian country is 
        appreciative of the support Congress has shown by increasing 
        CDFI funding; however, this serves a very specific and limited 
        role in tribal communities and falls short of providing viable 
        and responsive banking to the Native population. Congress 
        should work to provide an incentive for banks and credit unions 
        to serve the tribal population and provide competitive products 
        and services, including micro-loans, that meet the unique 
        financial needs of the tribal community.

        2. Financial Education--Tribal governments need to be able to 
        incorporate culturally relevant financial literacy programs at 
        a young age to; understand fundamental credit issues and 
        alternatives, understand the value an types of savings programs 
        available such as ``individual development accounts (IDAs)'' 
        and learn to take advantage of available programs such as 
        ``Volunteer Income Tax Assistance (VITA)'' to reduce the 
        incidence of Refund Anticipation Loans. In addition there is a 
        need to increase the presence of intermediaries in tribal 
        communities. Tribal citizens need help when buying a car, 
        financing a mobile home or accessing a micro-loan to start a 
        business. Intermediaries are under-represented in Indian 
        country. These non-profits serve a key role in guiding 
        consumers to make better financial and life decisions.

        3. Jurisdiction--Non-bank lenders tend to cluster around 
        reservations and military bases taking full advantage of 
        financially unsophisticated consumers. To protect our soldiers 
        and sailors on federal military bases from the irresponsible 
        practices of payday lenders, car dealerships and tax preparers, 
        Congress passed a bill that places a cap on non-bank loans to 
        the military personnel. Congress should consider giving tribes 
        the same capability to protect their citizens with the ability 
        to opt into models similar to the military fix. It is very 
        important for Congress to consider promoting responsive 
        community banking in tribal communities by giving tribes the 
        authority to approve banks that do business on their 
        reservations in a manner similar to state governments.

    Because we have been under-banked for so long, we may appreciate 
having a lender of any sort serve the needs in tribal communities. But 
do we really need to settle for lenders that provide little in the way 
of tribal citizen protections? And do we need to settle for 
unreasonable rates and fees with no consideration for an individual's 
ability to pay?
    We need to identify and fix the underlying problems. We need 
jurisdiction, we need financial literacy and we need banks, credit 
unions, CDFI's and non-profits in Indian country. We need responsive 
institutions and products. Our tribal citizens deserve better.

                                  
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