WASHINGTON, DC – Today, Senator Herb Kohl (D-WI) introduced the Safe Affordable Loan Act. This legislation will help increase low and moderate income Americans' access to mainstream financial institutions as an alternative to pay day lenders. The bill will encourage community banks and credit unions to provide small dollar loan amounts to borrowers across their communities.       

The FDIC released a study today which shows that 25 percent of Americans -- nine million people -- are without bank accounts and an additional 20 million are considered "underbanked."  Underbanked individuals have a checking or savings account, but rely on alternative financial services such as payday lenders or non-bank check cashing services.  Additionally, the survey results showed that a substantial amount of those considered unbanked have incomes $30,000 or less.   

"The FDIC survey results are not surprising.  Low-income Americans have typically been left out of mainstream financial services for a variety of reasons," Kohl said.  "Without better access to banks or credit unions, consumers will continue to rely on other financial services which might be quicker, but often carry larger financial consequences."  

There are approximately 30 million Americans operating on the fringe of the financial system.  The average income for these individuals is approximately $26,390, with little to no savings. 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.   

The Safe Affordable Loan Act will create a loan-loss reserve fund which 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 sixty 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 have reasonable interest rates. 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. The financial institutions would also be required to report payment history to the credit reporting bureaus which will help consumers build credit or repair bad credit.               

This legislation is supported by the National Community Reinvestment Coalition and the National Council of La Raza.    

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