August 19, 2008

Federal legislation seeks to limit access to financial services

Low- and moderate-income consumers are facing an increasing number of threats to their access to small dollar, short-term loans. In addition to efforts at the state and local levels to restrict these products, it is becoming increasingly apparent that Capitol Hill will be a major battleground next year. Consider legislation that is already pending in Congress that would drastically impact this access to credit:

• Last year, U.S. Representative Tom Udall (D-NM) introduced the Payday Loan Reform Act of 2007 which calls for the outright abolition of short-term, small dollar loans.
• Earlier this year, U.S. Senator Richard Durbin (D-IL) introduced the Protecting Consumers from Unreasonable Credit Rates Act, which establishes a federal usury cap of 36 percent on all consumer credit transactions. The bill is specifically aimed at payday loans and car title loans.
• Finally, earlier this month four U.S. senators (Daniel Akaka (D-HI), Charles Schumer (D-NY), Joseph Lieberman (D-CT) and Daniel Inouye (D-HI)) introduced the Improving Access to Mainstream Financial Institutions Act of 2008. The bill would create two grant programs within the Department of the Treasury. The first would help traditional financial institutions to bank presently unbanked Americans and the second would provide a lower-cost, short-term alternative to payday advance loans.

Clearly, there is a growing interest on Capitol Hill in these products. What is less apparent is whether or not members of Congress have a clear understanding of the alternatives facing consumers with limited credit options, the high cost of those alternatives, or the sophistication of the consumers using these products.

In the coming months the Coalition for Financial Choice will continue to strongly advocate on behalf of maintaining access to these products.