MR. AKAKA-- Mr. President, I opposed the Bankruptcy Reform bill because it was an outdated bill that failed to include adequate consumer protections. We saw a record number of consumer bankruptcy filing prior to the October 17 implementation deadline for the harsh new bankruptcy. Not enough was included in the legislation to protect consumers from predatory lenders, or to make credit counseling a viable alternative to bankruptcy, or to better inform over extended consumers about the true costs of their debts. I was disappointed that the Senate failed to effectively address these issues in a meaningful way, and instead, passed a outdated bill that forces working families into more costly and difficult bankruptcy proceedings. I am committed to making improvements in this flawed law.
Today, I am introducing two bills that address flaws in the Bankruptcy Reform Law. The first bill is the Predatory Payday Loan Prohibition Act. This bill would prevent federally-insured financial institutions from originating predatory payday loans. Payday loans are small cash loans repaid by borrowers' postdated checks or borrowers' authorizations to make electronic debits against existing financial accounts. Payday loan amounts are usually in the range of $100 to $500 with full payment due in two weeks. Finance charges on payday loans are typically in the range of $15 to $30 per $100 borrowed, which translates into triple digit interest rates in the range of 390 percent to 780 percent when expressed as an annual percentage rate. Loan flipping, which is a common practice, is the renewing of loans at maturity by paying additional fees without any principal reduction. Loan flipping often leads to instances where the fees paid for a payday loan well exceed the principal borrowed. This situation often creates a cycle of debt that is hard to break. Industry analysts conservatively estimate that more than 15,000 payday advance locations across America extend about $25 billion in short-term credit to millions of households experiencing cash-flow shortfalls. Too many of its customers are low-income, working families. More and more customers are the financially stretched middle class, including people who have maxed out their credit cards, people perhaps who have lost a job, or people with no savings to fall back on during a situation that causes a cash-flow shortfall, such as a medical emergency.
Payday lending is also rampant in the military. One in five service members have used payday lenders in the last year, according to the report, "Payday Lenders Target the Military," by the Center for Responsible Lending. Payday lenders exploit people in financial need and profit enormously from these loans. We must act to protect vulnerable consumers from these predatory lenders.
In addition, I previously introduced S. 1347, the Low-Cost Alternatives to Payday Loans Act. This bill would authorize award demonstration project grants for eligible entities to provide consumers with low-cost, small loan alternatives to more costly, and predatory payday loans. Loan alternatives that meet the needs of consumers and are at a fair price must be developed.
Mr. President, today, I am also introducing the Bankruptcy Prevention Credit Counseling Act. The new Bankruptcy Reform Law does not allow consumers to declare personal bankruptcy in either Chapter 7 or Chapter 13, unless they receive a briefing from an approved nonprofit credit counseling agency within six months of filing. The credit counseling instructional course requirement is intended to provide financial education to consumers who declare bankruptcy so they can attempt to avoid future financial problems.
About one in three consumers in credit counseling enter a debt management plan. In exchange, creditors may agree to concessions so that consumers pay off as much of their outstanding debt as possible. Examples of concessions can include a reduced interest rate on the amount they owe and the elimination of fees. Unfortunately, most credit card companies have become increasingly unwilling to significantly reduce interest rates for consumers in credit counseling.
The Bankruptcy Prevention Credit Counseling Act would prevent unsecured creditors, primarily credit card issuers, from attempting to collect accruing interest and additional fees from consumers in bankruptcy, if the creditor does not have a policy of waiving interest and fees for debtors who enter a consolidated payment plan at a credit counseling agency. Since the new bankruptcy law requires that consumers enter credit counseling before filing for bankruptcy, we must ensure that consumers are given a fair chance at reducing their debt burden.
Mr. President, I also offered the text of the amendment of my bill, S. 393, the Credit Card Minimum Payment Warning Act, as an amendment to the bankruptcy bill. My amendment, intended to provide consumers with adequate, timely, and meaningful disclosures, was unfortunately defeated. As the Bankruptcy Reform law makes it more difficult for consumers to discharge their debts in bankruptcy, we have a responsibility to provide meaningful additional information so that consumers can make better informed debt management decisions. The Bankruptcy Reform law includes a requirement that credit card issuers provide a generic warning about the consequences of only making the minimum payment. This requirement fails to provide consumers the detailed information that my amendment would have provided, which means detailed, personalized information necessary for them to make better informed choices about their credit card use and repayment. My amendment would have required companies to inform consumers of how many years and months it would take to repay their entire balance, and the total cost in interest and principal, if the consumer makes only the minimum payment. My legislation would also have required consumers to be provided with the amount they would need to pay to eliminate their outstanding balance in 36 months. Finally, my legislation would have required that creditors establish a toll-free number so that consumers can access trustworthy credit counselors. In response to criticisms that my amendment was not feasible, I, along with Senator Sarbanes, requested that the Government Accountability Office study the issue. I am hopeful the report will provide helpful information as we must continue to improve meaningful and understandable disclosures that will help Americans better manage their credit card debts.
I want to take a moment to thank Senator Sarbanes, and his Banking Committee staff, for working with me on this and many other financial literacy related issues. In addition, I also want to thank Senator Leahy and the staff of the Judiciary Committee for all of their efforts to try and improve the flawed bankruptcy legislation.
I fear that the Bankruptcy Reform law will significantly harm families that have suffered financially due to illnesses, the loss of a job, or the death of a loved one. I remain committed to working with all of my colleagues to better protect and inform consumers and to hold the credit card industry accountable for its aggressive marketing of credit to our debt burdened society.
I ask unanimous consent that the full statements for the Predatory Payday Loan Prohibition Act and the Bankruptcy Prevention Credit Counseling Act be included in the Record and that the text of the bills be printed in the Record. I also ask unanimous consent that a letter of support for the Predatory Payday Loan Prohibition Act from the Consumer Federation of America, the Community Reinvestment Association of NC, Consumer Action, Consumers Union, the National Community Reinvestment Coalition, the National Consumer Law Center, and the U.S. Public Interest Research Group be included in the Record.
Thank you Mr. President.
