Where would modern government and Congress be without a little pork fat padding the end of every bill? That is the case with SB 3217, where the last nine pages of the 1566 bill create a whole new entitlement.
Now that the Senate bill has moved over back to committee to be reconciled with the House version, plenty of entities and industry insiders are weighing in on the provisions of the new soon to be law. But this final provision is buried so far at the back that it may go almost unnoticed even as we are paying for it.
Entitled Title XII, Improving Access to Mainstream Financial Institutions Act of 2010, the stated purpose of this Title is to, "encourage initiatives for financial products and services that are appropriate and accessible for millions of Americans who are not fully incorporated into the financial mainstream."
Put simply, the purpose of the title is to create incentives for the portion of our culture which does not maintain bank accounts and routinely uses pay day lenders as their money source.
The Act authorizes the Secretary of the Treasury to establish "a multi year program of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings to promote initiatives designed to:"
1. Enable low to moderate income individuals to establish one or more accounts in federally insured depository institutions that are appropriate to meet the financial needs of such individuals.
2. To improve access to the provision of accounts, on reasonable terms, for low to moderate income individuals.
Further, the Secretary of the Treasury is authorized to establish multi-year programs through grants, contracts, or financial agency agreements, with banks and depository institutions to provide low cost, small loans up to $2500.00 which will be less expensive for consumers than payday loans.
As part of participation in this program, the lending institutions who take part shall offer financial education courses including counseling services, educational courses and wealth building programs to each consumer receiving this type of loan. The cost for this education will be covered through federal grants.
Since payday loans are notoriously high risk and a series of small balance loans which defaulted could wreak havoc on a bank's balance sheet, the Act also creates grants to establish a loan loss reserve fund to offset the costs of the small dollar loan program. This fund may not be used to make loans to consumers, but it may be used to recapture part or all of a defaulted loan under the small dollar loan program.
There will also be grants provided to be used for technology, staff support and other cots associated with this program.
The requirements for these loans is that they shall not exceed $2,500.00, must be repaid in installments, must have no pre-payment penalty, and must be reported as a tradeline by the institution to at least one of the consumer credit reporting agencies.
The Act does not fix a dollar amount on the cost of this program. Rather it says that "such sums as are necessary to administer and fund the programs and projects authorized by this title" are authorized to be appropriated to the Treasury Secretary beginning in fiscal year 2010.
I am not saying that payday loans are the ideal financial instrument, but is it really the responsibility of the Federal Government (aka the American Taxpayer) to provide low interest loans to consumers who have made lifestyle choices that preclude more traditional forms of credit and banking? The same bill that dictates that consumer choices need to be limited in mortgage loans and that creates a huge bureaucracy to supervise how responsible people obtain credit is going to spend as much as is deemed necessary to provide perhaps less responsible people with loans they would not qualify for in a free market.
If that's not pork, I don't know what is.
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