[Congressional Record Volume 145, Number 91 (Thursday, June 24, 1999)]
[Extensions of Remarks]
[Pages E1387-E1388]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E1387]]



         UNSOLICITED LOAN CHECK CONSUMER PROTECTION ACT OF 1999

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, June 24, 1999

  Mr. LaFALCE. Mr. Speaker, I am today introducing legislation to 
address the problem of ``live'' loan checks that are mailed to 
consumers as part of credit solicitations. My bill, the ``Unsolicited 
Loan Check Consumer Protection Act of 1999,'' amends the Federal Truth 
in Lending Act to prohibit credit solicitations involving ``live'', or 
negotiable checks and to clarify that consumers cannot be held liable 
for any debt created by live check solicitations.
  Each month financial companies mail out thousands of live checks to 
consumers to entice them to accept credit offers. They come in official 
looking envelopes and are accompanied by letters instructing the 
recipient that all the check requires is their signature to become 
instant cash--and a fixed-term, high cost loan with interest rates 
often as high as 25 percent!
  Live check solicitations target senior citizens, young families in 
need of credit and individuals generally who are already heavily in 
debt. The amounts of the checks may appear manageable at first glance--
typically between $1,500 and $3,000. But they can trap consumers in 
fixed loan payments for three or four years, with any default or late 
payment triggering high fees, higher interest charges and demands for 
immediate payment in full.
  At a minimum, live check solicitation create widespread anxiety about 
potential liability if the checks are stolen and cashed. In some 
instances, they have been mistaken for government benefits or insurance 
reimbursement checks and cashed by elderly recipients. More often, 
however, live check solicitations entice consumers to take on added 
debt they didn't request, they can't request, they can't afford and, 
often, they can't repay.
  The problem of unsolicited live loan checks was brought to my 
attention by several constituent letters I received earlier this year. 
In one letter a man asked how his wife, who had earned only $1,850 the 
previous year, could possibly qualify to receive a $5,000 loan check 
based on her ``excellent credit standing''. Another letter described a 
young man in his early twenties who had received several loan check 
solicitations, between $1,500 and $2,000 each, despite the fact that he 
worked at an entry level job and had little credit history. The letter 
asked how any responsible financial institution could offer this young 
man thousands of dollars ``just for extra cash'' and expect him to 
repay the debt at 22 percent interest.
  The answer in both instances is that no responsible credit 
underwriting was involved. Credit was offered without any debt to 
income calculation to determine if the recipient could afford 
additional debt. No effort was made to determine whether the recipient 
had sufficient income to make monthly payments. The lenders didn't even 
care how the loan proceeds would be used. Live check solicitations have 
one purpose, and one purpose only--to entice and trap consumers into 
high-cost debt that they would never accept if offered by more 
legitimate means.
  Live check solicitations are not a new problem. They first began 
appearing in consumers' mailboxes in 1996 and immediately raised 
widespread concerns regarding consumer liability and abuse. The live 
loan checks were equated by the press and consumer groups with the live 
credit card solicitations that had caused similar consumer concerns in 
the 1960s. Congress responded to these earlier concerns in 1970 with a 
broad prohibition against all mailing of unsolicited credit cards to 
consumers.
  Seeking to avoid a similar prohibition on live check solicitations, 
the financial industry promised in 1997 to implement voluntary 
disclosure and security measures to minimize consumer confusion and 
potential liability. While of questionable benefit to begin with, these 
so-called ``protections'' were never uniformly implemented in live 
check solicitations in 1998. And they have largely disappeared from 
many of the live check solicitations that consumers have received this 
year.
  At a White House briefing in May, President Clinton equated the 
problem of live loan checks with the earlier problems of unsolicited 
credit cards and called upon Congress to enact a similar prohibition 
against live loan check solicitations. ``Consumers should not feel they 
have to shred their daily mail,'' the President noted, in order to 
avoid the potential liability and credit record hassles that can result 
from live check solicitations.
  The legislation I am introducing would address the problem of live 
loan check credit solicitations in several ways. First, it proposes a 
broad and unequivocal prohibition against any credit solicitation to 
consumers involving a check or other negotiable instrument that has not 
been applied for or requested in advance by the consumer. Second, it 
clarifies that no consumer will be held liable for repayment of any 
debt arising from a live check solicitation, nor may creditor submit 
adverse information about a consumer to a credit bureau relating to any 
debt arising from such solicitations. Third, the bill requires the 
Federal Reserve Board to publish final regulations to implement this 
prohibition within 6 months after enactment.
  The bill section that clarifies consumer liability is extremely 
important and distinguishes my bill from earlier proposals to address 
this issue. While proposing a prohibition on live check solicitations 
these proposals would continue to make consumers liable for any 
prohibited live check solicitation they voluntarily or inadvertently 
Deposit. This approach fails to address the problems of individuals who 
don't understand the implications of the check solicitations, or who 
confuse them with the other check payments or reimbursements, and would 
continue to encourage live check solicitations targeted to the most 
vulnerable groups.
  The bill also includes a provision to provide the Federal Reserve 
with authority to issue regulations, if it becomes necessary, to 
address the related problem ``look-alike'' checks in credit 
solicitations. Look-alike checks are typically for amounts 
significantly larger than live loan checks and are used primarily by 
so-called sub-prime lenders to solicit second mortgages and home equity 
loans. While non-negotiable, the ``checks'' often have all the elements 
of negotiable instruments, including what appear to the consumer as 
account numbers, clearance bar codes, official signatures--with some 
even including the FDIC logo or other government-related symbols. Their 
purpose is clearly to attract consumer attention by looking as close to 
an official bank or government check as possible. In some instances the 
fact that they are non-negotiable is not clearly apparent, or is 
disclosed only in very small print.
  My concerns with ``look-alike'' checks center on the possibility, if 
we success in prohibiting live check solicitations, that numerous 
creditors will shift to ``look-alike'' checks to attract and confuse 
consumers. If this becomes as widespread as I fear it will, the Federal 
Reserve would have the authority to address it with guidelines that 
could, for example, restrict the use of government symbols or require 
that these ``checks'' state prominently that they are ``non-
negotiable.'' Such regulation is merely discretionary in the bill, it 
is not required.
  I agree with President Clinton that consumers should not feel they 
have to shred their daily mail to avoid liability for unsolicited loan 
checks. I do not believe that senior citizens should be deceived into 
high-cost debt by mailings designed to look like government checks. I 
oppose any practices that attempt to lure low-income families with easy 
credit under terms they clearly cannot afford. And I strongly believe 
that all solicitations of consumer credit should be subject to thorough 
and responsible credit underwriting.
  Mr. Speaker, the problems of unsolicited loan checks parallel those 
of unsolicited credit cards three decades ago. I urge the Congress to 
respond in similar fashion by enacting a board and unambiguous 
prohibition on live loan check solicitations. I urge consideration of 
this legislation at the earliest opportunity.
  The text of the bill follows:

                                H.R. --

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Unsolicited Loan Check 
     Consumer Protection Act of 1999''.

     SEC. 2. UNSOLICITED LOAN CHECKS PROHIBITED.

       (a) In General.--Chapter 2 of the Consumer Credit 
     Protection Act (15 U.S.C. 1631 et seq.) is amended by adding 
     at the end the following new section:

     ``SEC. 140. SOLICITATIONS FOR CONSUMER LOANS.

       ``(a) `Live' Loan Checks Prohibited.--No consumer credit 
     which is otherwise subject

[[Page E1388]]

     to this title may be extended by any creditor through the use 
     of a check or other negotiable instrument which has been sent 
     by the creditor to the consumer in connection with a 
     solicitation by the creditor for such extension of credit, 
     unless the consumer has submitted an application for, or 
     otherwise requested, such extension of credit before 
     receiving the check or instrument.
       ``(b) Consumer Not Liable.--If any creditor includes a 
     check or other negotiable instrument in a solicitation to a 
     consumer for an extension of credit sent by a creditor to a 
     consumer in violation of subsection (a)--
       ``(1) the consumer shall not be liable for the amount of 
     any such check or other negotiable instrument; and
       ``(2) no information on any liability of the consumer 
     alleged by the creditor to have been established through such 
     check or other negotiable instrument may be reported to or 
     received by any credit agency (as defined in section 603 of 
     the Fair Credit Reporting Act) or included in any consumer 
     credit report under such Act.
       ``(c) Regulations.--
       ``(1) Regulations required.--
       ``(A) In general.--Before the end of the 6-month period 
     beginning on the date of the enactment of the Unsolicited 
     Loan Check Consumer Protection Act of 1999, the Board shall 
     prescribe final regulations to implement the requirements of 
     this section.
       ``(B) Modifications.--The Board shall modify and clarify 
     any regulation prescribed under subparagraph (A) whenever the 
     Board determines such action to be necessary to prevent any 
     circumvention of the requirements of this section or to 
     facilitate compliance with such requirements.
       ``(2) Limitations on `look-alike' checks.--
       ``(A) Regulations authorized.--The Board may, if the Board 
     finds that such action is necessary to prevent confusion by 
     consumers, prescribe regulations setting forth guidelines for 
     the use, in a solicitation for an extension of credit, of 
     certificates, vouchers, or other non-negotiable instruments 
     that are intended to have the appearance of a check or other 
     negotiable instrument, but which do not violate subsection 
     (a) of this section.
       ``(B) Disclosures and other requirements.--Any regulation 
     prescribed under subparagraph (A) shall include such 
     disclosures and modifications relating to the appearance and 
     use of certificates, vouchers, or other non-negotiable 
     instruments in a solicitation for an extension of credit as 
     the Board determines necessary or appropriate.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     2 of the Consumer Credit Protection Act is amended by adding 
     at the end the following new item:
       ``140. Solicitations for consumer loans.''.
       (c) Scope of Application.--The requirements of this Act and 
     the amendments made by this Act shall apply to solicitations 
     for extensions of credit made to consumers after the date of 
     enactment of this Act.

     

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