Mr. President, every year, members of the Hawaii Credit Union League meet with me during their trip to Washington, D.C. They keep me abreast of their work in Hawaii by providing affordable financial services to their members. I would like to recognize credit unions and other mainstream financial services organizations that provide access to financial services that improve the lives of their members. Without credit unions, even more of our constituents would be susceptible to predatory lending and high cost-financial services. For example, individuals that lack credit union or bank accounts are considered to be unbanked. The unbanked rely on alternative financial service providers to cash checks, pay bills, send remittances, utilize payday loans, and obtain credit. However, their earnings are unnecessarily diminished in the process by their reliance on these high-cost, and often predatory, financial services. These hardworking families can ill-afford this hit to their paychecks. Not having a credit union or bank account prevents families from being able to save securely to prepare for the loss of a job, a family illness, a down payment on a first home, or education expenses for their children.
Mr. President, I am proud that we have credit unions in Hawaii that provide innovative services to more effectively meet the needs of their members such as offering payday loan alternatives to members of the Armed Services. Payday loans are small cash loans repaid by borrowers' postdated checks or borrowers' authorizations to make electronic debits against existing financial accounts. Typically, the principal for payday loans is in the range of $100 to $500 with full payment due in two weeks. Finance charges on payday loans are normally in the range of $15 to $30 per $100 borrowed, which translates into triple digit interest rates of 390 percent to 780 percent when expressed as an annual percentage rate (APR). A common practice is loan flipping, which is the renewing of loans at maturity by paying additional fees without any principal reduction. This practice often creates a cycle of debt that is hard to break. Furthermore payday lenders often locate near military bases because they know that a military service member's government paychecks represent a reliable source of fees and military personnel may be court marshaled or dishonorably discharged for failing to repay their debt. I am proud that the Windward Community Federal Credit Union in Kailua, on the island of Oahu, has developed an affordable alternative to payday loans. I commend the staff of the Windward Community Federal Credit Union for their outstanding program which benefits the Marines and other members that they serve. I have introduced legislation that would encourage credit unions and other financial institutions to offer this sort of low-cost, short-term credit product. S. 1347, the Low-Cost Alternatives to Payday Loans Act, would promote low-cost alternatives to payday loans by authorizing the Secretary of the Treasury to award demonstration project grants. I will continue to work with my colleagues on the Banking, Housing, and Urban Affairs Committee to enact this important legislation.
Mr. President, I also have included efforts to increase access to credit union and bank accounts in an attempt to combat refund anticipation loans (RALs). While the earned income tax credit (EITC) helps working families meet their food, clothing, housing, transportation, and education needs, EITC refunds are unnecessarily diminished by excessive use of RALs. Interest rates on RALs can range from 97 percent to more than 2,000 percent. Considering the low repayment risk of this type of loan, the interest rates and fees charged on this type of product are not justified. Often, those who take out RALs are lower-income families for whom these costs are a particular burden.
I have introduced the Taxpayer Abuse Prevention Act, which would restrict predatory practices associated with RALs and expand access to mainstream financial services. The bill would expand the eligibility of Electronic Transfer Accounts (ETA), which are low-cost accounts at banks and credit unions intended for recipients of certain Federal benefit payments, to include EITC benefits. These accounts will allow taxpayers to receive direct deposit refunds into an account without the need for a refund anticipation loan. Additionally, my bill would mandate that low- and moderate-income taxpayers be provided opportunities to open low-cost accounts at federally insured banks or credit unions via appropriate tax forms. Providing taxpayers with the option of opening a bank or credit union account through the use of tax forms provides an alternative to RALs and immediate access to financial opportunities found at banks and credit unions.
In addition, Mr. President, I have worked with my friend, the Senator from New Mexico, Senator Bingaman, on the Taxpayer Protection and Assistance Act. The legislation includes a provision that authorizes a grant program to link tax preparation services with the opening of a bank or credit union account. This will help encourage the estimated four million unbanked EITC recipients to establish a relationship with a mainstream financial institution. In turn, they will no longer be forced to pay the excessive fees RAL providers assess. Once the previously unbanked have established a credit union or bank account, they will be able to benefit from the wide range of financial services that mainstream financial institutions provide.
Mr. President, I will continue to work to expand access to mainstream financial institutions so that more individuals can benefit from lower-cost opportunities found at credit unions and banks. I thank the representatives from the Hawaii Credit Union League for all of their work in providing financial services and increasing the financial literacy knowledge of their members. I also will continue to work to enact legislation that promotes the utilization of the services of credit unions and banks so that even more people can improve their lives by having access to low-cost accounts, cheaper remittances, less expensive loans, and insured savings accounts. Thank you, Mr. President.
