[Congressional Record (Bound Edition), Volume 150 (2004), Part 10]
[Senate]
[Pages 13825-13826]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   DEBT BURDENS AND PREDATORY LENDING

  Mr. AKAKA. Mr. President, I rise today to focus on the challenges 
facing America's working families. Rising health care costs, increases 
in gasoline prices, and the lack of affordable housing have contributed 
to making the lives of working families more difficult as they strain 
to meet their day-to-day needs. The ability of these families to meet 
their increasing financial obligations is hampered by their significant 
debt burdens, particularly credit card debt, and by predatory lending 
practices such as refund anticipation loans.
  Mr. President, too many families are becoming overwhelmed by their 
debts. In 2003, consumer debt increased for the first time to more than 
$2 trillion, and continued to increase in March, 2004, for the 12th 
straight month according to the Federal Reserve. A key component of 
household debt can be attributed to the use of credit cards. Revolving 
debt, mostly comprised of credit card debt, has more than doubled from 
$313 billion in January 1994 to $756 billion in March 2004. These debt 
burdens will increase as interest rates rise. Bankruptcy filings have 
surged to record levels. In 2003, more than 1.6 million consumers filed 
for bankruptcy, increasing by 2.8 percent in the 12 months ending on 
March 30, 2004. Many of these are middle class Americans who continue 
to work hard to make ends meet.
  It is imperative that we make consumers more aware of the long-term 
effects of their financial decisions, particularly in managing their 
credit card debt. Obtaining credit has become easier. Students are 
offered credit cards at earlier ages, particularly since credit card 
companies have been successful with aggressive campaigns targeted 
towards college students. Universities and alumni associations across 
the country have entered into marketing agreements with credit card 
companies. For example, the University of Oklahoma will receive $13 
million over 10 years in exchange for the exclusive ability to market 
credit cards to students, alumni, and employees, and to issue cards 
with the university's name. In this agreement, the school also receives 
0.4 percent of every credit purchase. More than 1,000 universities and 
colleges have affinity cards which are made as attractive as possible 
through the opportunity to earn various benefits and discounts. College 
students make up a very ripe market for such credit and to boot are 
considered by some very good customers for lenders based on their 
payment patterns. Nina Prikazsky, Nellie Mae's Vice President of 
Operations, was quoted in the Chronicles of Higher Education as saying, 
``Banks will take risks on young people the way they never would a 
decade ago, because they've discovered that students have become their 
best customers because they tend to make the minimum payments.'' Thus, 
college students, many already burdened with educational loans, are 
accumulating credit card debt. Forty-five percent of college students 
carry credit card debt, with the average debt over $3,000.
  While it is relatively easy to obtain credit, especially on college 
campuses, not enough is being done to ensure that credit is properly 
managed. Currently, credit card statements fail to include all of the 
information necessary to allow individuals to make fully informed 
financial decisions. Mr. President, I recently introduced S. 2475, the 
Credit Card Minimum Payment Warning Act, along with Senators Durbin, 
Leahy, and Schumer. Our legislation will make it very clear what costs 
consumers incur if they make only the minimum payments on their credit 
cards. The personalized information consumers will receive for each of 
their credit card accounts will help them to make informed choices 
about the payments that they choose to make towards their balance.
  The bill also requires that credit card companies provide useful 
information so that people can develop strategies to free themselves of 
credit card debt and have access to a toll-free number so that 
consumers can access trustworthy credit counselors. My bill represents 
sound legislation that aims to protect middle income and other families 
in this country.
  Mr. President, the ability of families to survive financially is also 
hampered by predatory lending. Earned income tax credit, EITC, benefits 
intended for working families are increasingly being reduced by the 
growing use of refund anticipation loans, which typically carry triple 
digit interest rates. According to the Brookings Institution, an 
estimated $1.9 billion intended to assist low-income families was 
received by commercial tax preparers and affiliated national banks to 
pay for tax assistance, electronic filing of returns, and high-cost 
refund loans in 2002. The interest rates and fees charged on refund 
anticipation loans are not justified for the short length of time that 
these loans cover and the minimal risk they present. These loans do not 
carry much risk because of the Debt Indicator program. The Debt 
Indicator is a service provided by the Internal Revenue Service that 
informs the lender whether or not an applicant owes Federal or State 
taxes, child support, student loans, or other Government obligations, 
and this assists the tax preparer in ascertaining the applicant's 
ability to obtain their full refund so that the RAL is repaid. The 
Department of the Treasury should not be facilitating these predatory 
loans that allow tax preparers to reap outrageous profits that result 
from the exploitation of working families. More needs to be done to 
crack down on abusive refund anticipation loans and to provide 
additional opportunities for EITC families to access free tax 
preparation services. I appreciate the efforts of the Senate Finance 
Committee for incorporating several provisions of S. 685, the Low 
Income Taxpayer Protection Act, which Senator Bingaman and I 
introduced, into S. 882, the Tax Administration Good Government Act. 
One provision of special importance to me is an authorization for a 
grant program to link tax preparation services with the establishment 
of a bank or credit union account. Having a bank account allows 
individuals to receive their tax refund check faster than waiting for a 
paper check and without the need for using refund anticipation loans or 
check cashing services. It is important these provisions to provide 
additional consumer protections and expand opportunities of taxpayer 
assistance be enacted into law. We must work to provide alternatives to 
RALs and crack down on these exploitive loans.

[[Page 13826]]

  Mr. President, unfortunately too many working families are 
susceptible to predatory lending because they are left out of the 
financial mainstream. Between 25 and 56 million adults are unbanked, or 
not using mainstream, insured financial institutions. The unbanked rely 
on alternative financial service providers to obtain cash from checks, 
pay bills, send remittances, utilize payday loans, and obtain credit. 
Many of the unbanked are low- and moderate-income families that can ill 
afford to have their earnings unnecessarily diminished by their 
reliance on these high-cost and often predatory financial services. In 
addition, the unbanked are unable to save securely to prepare for the 
loss of a job, a family illness, or a down payment on a first home or 
education expenses.
  Mr. President, a Federal program, the First Accounts program, is 
intended to increase access for unbanked low- and moderate-income 
individuals to mainstream financial services. The program helps to 
offset the costs financial institutions incur in offering low-cost, 
electronic banking accounts. In addition, the program supports 
financial institution and nonprofit initiatives to provide financial 
education and counseling to low-income households. The First Accounts 
program has the potential for developing research into the financial 
services needs of low-income individuals and financial products 
designed to meet these needs. While the need is great, the President 
proposed in his fiscal year 2005 budget request to rescind the $4 
million for the First Accounts program that had been previously 
appropriated in fiscal year 2002 and fiscal year 2003. I will continue 
to work with my colleagues to help preserve these funds for their 
intended purpose and bring people into the financial mainstream.
  Mr. President, I look forward to continuing to work with my 
colleagues to help provide additional meaningful disclosure to 
consumers about their use of credit and expanding access to mainstream 
financial service opportunities. We owe it to our country's working 
families and their children.

                          ____________________