[Congressional Record Volume 155, Number 177 (Wednesday, December 2, 2009)]
[Senate]
[Page S12162]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KOHL (for himself and Mr. Durbin):
  S. 2824. A bill to establish a small dollar loan-loss guarantee fund, 
and for other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.
  Mr. KOHL. Mr. President, I rise to introduce the Safe Affordable Loan 
Act. This legislation will increase the access for low and moderate 
income Americans to mainstream financial institutions while reducing 
the relevance of pay day lenders. Additionally, the bill will encourage 
community banks and credit unions to provide small dollar loan amounts 
to families across their communities.
  There are approximately 30 million Americans operating on the fringe 
of the financial system. They are known as the ``unbanked.'' The 
average income for these individuals is approximately $26,390, with 
little to no savings. Additionally, these consumers rely on check 
cashing services or payday lenders as a way to access credit. Most of 
these operations charge excessive fees and interest rates that leave 
consumers financially devastated. Without access to mainstream 
financial services, consumers can be trapped in a cycle of debt with 
little hope of escape.
  In 2008, the FDIC launched a Small Dollar Loan program which offers 
volunteer participants CRA credit to provide consumers with affordable 
small dollar loans. I am proud that two banks from Wisconsin, Mitchell 
Bank in Milwaukee and Benton State Bank in Benton are participating in 
this valuable program. While this program has been beneficial to 
communities across the country, only 31 banks have chosen to 
participate. That is a drop in the bucket compared to the 23,000 payday 
lender operations. Without other incentives, banks will shy away from 
lending consumers small amounts, leaving them to rely on payday lenders 
and other loan alternatives.
  The legislation I am proposing would create a loan-loss reserve fund 
that financial institutions could access in order to mitigate some of 
the risk associated with offering small dollar loans. Financial 
institutions will be able to access the reserve fund and could 
potentially recover 60 percent of a lost loan, provided that their 
loans meet certain affordability requirements. The institutions must 
offer loans that have no prepayment penalties, have a repayment period 
longer than 60 days and has an interest rate of 36 percent APR or 
lower. Additionally, the loan size cannot exceed $2,500. In order to 
protect the government from excessive risk taking by the financial 
institutions, the fund administrator will take into consideration the 
overall default rate of the loan program that the institution offers to 
determine the reimbursement rate. Furthermore, the financial 
institutions would be required to report payment history to the credit 
reporting bureaus which will help consumers build credit or repair bad 
credit.
  As we consider changes to our financial system, we should include 
reforms that will help increase access to many of those who are left 
out. I look forward to working with my colleagues on this important 
issue in the Banking Committee to move it towards passage.

                          ____________________